Amphastar Pharmaceuticals
Annual Report 2015

Plain-text annual report

AMPHASTAR PHARMACEUTICALS, INC. FORM 10-K (Annual Report) Filed 03/15/16 for the Period Ending 12/31/15 Address Telephone CIK Symbol SIC Code Fiscal Year 11570 SIXTH STREET RANCHO CUCAMONGA, CA 91730 909-980-9484 0001297184 AMPH 2834 - Pharmaceutical Preparations 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.   UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549   FORM 10-K  ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 201 5OR ◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to _____Commission File Number 001-36509 AMPHASTAR PHARMACEUTICALS, INC.(Exact name of registrant as specified in its charter)  Delaware33-0702205(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 11570 6 Street,Rancho Cucamonga, CA 91730(Address of principal executive offices, including zip code) (909) 980-9484(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each className of each exchange on which registeredCommon Stock, $0.0001 par value per shareNASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ◻     No   ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ◻     No   ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    ☒     No    ◻Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    ☒     No    ◻Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      ◻Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer◻Accelerated filer☒Non-accelerated filer◻(Do not check if a smaller reporting company)Smaller reporting company◻ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ◻     No   ☒ The a ggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 201 5 , based upon the closing price of Common Stock on such date as reported by NASDAQ GlobalSelect Market, was approximately $625,638,657 . Shares of common stock known to be held by directors , executive officers and holders of 5% or more of the outstanding common stock of the r egistrant are notincluded in the computation. No determination has been made that such persons are “affiliates” of the registrant for any other purpose. At March 8, 201 6 , there were 44,913,928 , shares of the registrant’s c ommon s tock outstanding. Documents Incorporated by ReferencePortions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year to which this report relates in connection with its 201 6Annual Meeting of Stockholders are incorporated by reference into Part III hereof.    th Table of Contents AMPHASTAR PHARMACEUTICALS, INC.TABLE OF CONTENTS            PageNo.   Part I   Item 1.   Business 4  Item 1A.   Risk Factors 27  Item 1B.   Unresolved Staff Comments 65  Item 2.   Properties 65  Item 3.   Legal Proceedings 66  Item 4.   Mine Safety Disclosures 66    Part II   Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 67  Item 6.   Selected Financial Data 69  Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 71  Item 7A.   Quantitative and Qualitative Disclosures about Market Risk 88  Item 8.   Financial Statements and Supplementary Data 90  Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 137  Item 9A.   Controls and Procedures 137  Item 9B.   Other Information 138    Part III   Item 10.   Directors, Executive Officers and Corporate Governance 139  Item 11.   Executive Compensation 139  Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 139  Item 13.   Certain Relationships and Related Transactions, and Director Independence 139  Item 14.   Principal Accountant Fees and Services 139    Part IV   Item 15.   Exhibits and Financial Statement Schedules 140          Signatures 143        Table of ContentsSPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, or Annual Report, contains “forward-looking statements” that involve substantial risks anduncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,”“would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,”“ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements containthese words. These statements relate to future events or our future financial performance or condition and involve known andunknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievementto differ materially from those expressed or implied by these forward-looking statements. These forward-looking statementsinclude, but are not limited to, statements about:·our expectations regarding the sales and marketing of our products, including our enoxaparin product and our profitsharing agreement with Allergan ;  ·our expectations regarding our manufacturing and production and the integrity of our supply chain for our products,including the risks associated with our single source suppliers;·the timing and likelihood of FDA approvals and regulatory actions on our product candidates, manufacturing activitiesand product marketing activities;·our ability to advance product candidates in our platforms into successful and completed clinical trials and oursubsequent ability to successfully commercialize our product candidates;·our ability to compete in the development and marketing of our products and product candidates;·the potential for adverse application of environmental, health and safety and other laws and regulations on ouroperations;·our expectations for market acceptance of our new products and proprietary drug delivery technologies , as well as thoseof our API customers ;  ·the potential for our marketed products to be withdrawn due to patient adverse events or deaths, or if we fail to secureFDA approval for products subject to the Prescription Drug Wrap-Up program;·our expectations in obtaining insurance coverage and adequate reimbursement for our products from third-party payers;·the amount of price concessions or exclusion of suppliers adversely affecting our business;·our ability to establish and maintain intellectual property protection for our products and our ability to successfullydefend our intellectual property in cases of alleged infringement;·the implementation of our business strategies, product development strategies and technology utilization ;  ·the potential for exposure to product liability claims;·future acquisitions or investments;·our ability to expand internationally;·economic and industry trends and trend analysis;·our ability to remain in compliance with laws and regulations that currently apply or become applicable to our businessboth in the Uni ted States and internationally;·our remediation efforts for a material weakness in our internal control over financial reporting; and·our financial performance expectation s, including our expectations regarding our revenue, cost of revenue, gross profitor gross margin, operating expenses, including changes in research and development, sales and marketing and generaland administrative expenses, and our ability to achieve and maintain future profitability. You should read this Annual Report and the documents that we reference elsewhere in this Annual Report completely and withthe understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, youshould not place undue reliance on or regard these statements as a representation or warranty3 Table of Contentsby us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. We discuss many ofthese risks and uncertainties in greater detail in this Annual Report, particularly in Part I. Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report regardless of the time ofdelivery of this Annual Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Annual Report. Unless expressly indicated or the context requires otherwise, references in this Annual Report to “Amphastar,” “the Company,”“we,” “our,” and “us” refer to Amphastar Pharmaceuticals, Inc. and our subsidiaries, unless the context indicates otherwise. Item 1. Business. Overview We are a specialty pharmaceutical company that focuses primarily on developing, manufacturing, marketing and sellingtechnically-challenging generic and proprietary injectable, inhalation, and intranasal products. Additionally, in 2014, wecommenced sales of insulin active pharmaceutical ingredient, or insulin API ,   products. We currently manufacture and sell 18products including Amphadase , which we re-launched in the fourth quarter of 2015. Additionally, we are developing a portfolioof 12 generic abbreviated new drug applications, or ANDAs, three generic biosimilar and six proprietary injectable and inhalationproduct candidates. For the years ended December 31, 2015, 2014, and 2013, we recorded net revenues of $ 251. 5 million,$210.5 million, and $229.7 million, respectively. We recorded a net loss of $ 2.8 million and $10.7 million for the years endedDecember 31, 2015 and 2014, respectively, and recorded net income of $11.9 million for the year ended December 31, 2013. Our largest product by net revenues is currently enoxaparin sodium injection, the generic equivalent of Sanofi S.A.’s Lovenox .Enoxaparin is a difficult to manufacture injectable form of low molecular weight heparin that is used as an anticoagulant and isindicated for multiple indications including the prevention and treatment of deep vein thrombosis. We commenced sales of ourenoxaparin product in January 2012, and for the years ended December 31, 2015, 2014, and 2013, we recognized net revenuesfrom the sale of our enoxaparin product of $84.5 million, $107.5 million, and $145.9 million, respectively. We believe that ourenoxaparin product demonstrates our capabilities in characterizing complex molecules (which is a process that involves adetermination of physiochemical properties, biological activity, immunochemical properties and purity), performing sophisticatedimmunogenicity studies, developing therapeutically equivalent generic versions of drugs with large, complex molecules andmeeting regulatory requirements .In June 2015, we received approval of our new drug application, or NDA, supplement for Amphadase . This marks the firstapproved starting material from Amphastar Nanjing Pharmaceuticals Co., Ltd., or ANP, and signifies that our facility located inNanjing, China has been qualified by the U.S. Food and Drug Administration, or FDA. We re-launched Amphadase in the fourthquarter of 2015. Amphadase is competing in the hyaluronidase market and is used for the dispersion and absorption of otherinjected drugs . In addition to our currently marketed products, we have a pipeline of 2 1 generic and proprietary product candidates in variousstages of development which target a variety of indications. With respect to these product candidates, we have three ANDAs and  one NDA currently on file with the FDA.Our product candidate, Primatene HFA, an over-the-counter epinephrine inhalation product, is intended to be used for thetemporary relief of mild asthma symptoms . In 2013, we filed a n NDA for Primatene HFA.   In May 2014, we received acomplete response letter, or CRL, from the FDA, w hich require d additional non-clinical information, label revisions and follow-up studies (label comprehension, behavioral /human factors and actual use) to assess consumers’ ability to use the devicecorrectly to support approval of the product in the over-the-counter setting. We met with the FDA in October 2014 to discusspreliminary data results and to clarify the FDA requirements for further studi es. We received further advice regarding ourongoing studies from the FDA in January 2016 and we are currently in the process of generating the remaining data required bythe CRL and plan to submit an NDA a mendment that we believe will address the FDA’s concerns. However, there can be noguarantee that any amendment to our NDA will result in timely approval of the product candidate or approval at all.4 ® ® ® ® ® ® ® Table of ContentsOur multiple technological capabilities enable the development of technically-challenging products. These capabilities includecharacterizing complex molecules, analyzing peptides and proteins, conducting immunogenicity studies, engineering particles andimproving drug delivery through sustained-release technology. These technological capabilities have enabled us to producebioequivalent versions of complex drugs and support the development and manufacture of a broad range of dosage formulations,including solutions, emulsions, suspensions and lyophilized products, as well as products administered via pre-filled syringes,vials, metered dose inhalers, or MDIs, and dry powder inhalers, or DPIs.Our primary strategic focus is to develop and commercialize products with high technical barriers to market entry. We arespecifically focused on products that:·leverage our proprietary research and development capabilities;·require raw materials or API s for which we believe we have a competitive advantage in sourcing, synthesizing ormanufacturing; and/or·improve upon an existing drug’s formulation with respect to drug delivery, safety and/or effic a cy.Not all of our products will include all of these characteristics. Moreover, we will opportunistically develop and commercializeproduct candidates with lower technical barriers to market entry if, for example, our existing supply chain and manufacturinginfrastructure allow us to pursue a specific product candidate in a competitive and cost-effective manner.To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products andtechnologies. We believe that t hese acquisitions collectively have strengthened our core injectable and inhalation producttechnology infrastructure by providing additional manufacturing, marketing and research and development capabilities includingthe ability to manufacture raw materials, APIs and other components for our products.Our MarketsWe primarily target products with high technical barriers to market entry, with a particular focus on the injectable and inhalationmarkets. We also manufacture and sell certain APIs.·Injectable market. Based on an IMS Health National Sales Perspective Report, the U.S. generic injectable drugmarket in 2015 was approximately $8.6 billion, of which our generic development portfolio is targeting over $5.0billion. The injectable market requires highly technical manufacturing capabilities and compliance with strictcurrent Good Manufacturing Practice, or cGMP , requirements, which create high barriers to market entry. Due tothese high barriers to market entry, there are a limited number of companies with the technology and experienceneeded to manufacture injectable products. There have also been a number of quality issues over the past severalyears that have disrupted the ability of certain injectable manufacturers to produce sufficient product quantity tomeet market demand. As such, the supply of injectables has been constrained, even as demand for injectableproducts has continued to increase.·Inhalation market. Based on an IMS Health National Sales Perspective Report, the U.S. inhalation drug market in2015 was approximately $24.0 billion, of which our generic development portfolio is targeting over $10.5 billion.Inhalation drug therapy is used extensively to treat respiratory conditions such as asthma and chronic obstructivepulmonary disease. The MDI is the most widely used device to deliver inhalation therapies. It uses pressurized gas,historically chlorofluorocarbons, or CFCs, and more recently hydrofluoroalkanes, or HFAs, to release its dose whenthe device is activated by the patient. The DPI, which does not rely on a propellant, is also widely used. As in thecase of injectables, there are significant technical barriers to manufacturing inhalation products. The evolution ofinhalation delivery technologies from nebulizers and CFCs to HFAs and DPIs has required manufacturers ofinhalation products to re-formulate their products, which in many cases may require technical engineeringcapabilities, additional regulatory approvals and modified delivery devices. Additionally, the development ofgeneric HFA and DPI products will require bioequivalence studies for FDA approval.5 Table of ContentsOur StrengthsWe have built our company by integrating the following capabilities and strengths that we believe enable us to competeeffectively in the pharmaceutical industry:·Robust portfolio of products and product candidates. Including our enoxaparin product, we have 1 8 commercialproducts and 2 1 product candidates at differen t stages of development. We also continue to develop our productcandidates, which represent our longer-term growth opportunities.·Advanced technical capabilities and multiple delivery technologies. We have developed several advanced technicalcapabilities that we incorporate into the development of our products and product candidates, includingcharacterization of complex molecules, peptide and protein analysis, immunogenicity studies, particle engineeringand sustained-release technology. In addition, we apply these capabilities across our injectable and inhalationdelivery technologies. Our injectable delivery technologies enable us to develop and manufacture generic andproprietary injectables in normal solution, lyophilized, suspension, jelly and emulsion forms, as well as in pre-filledsyringes. Our inhalation technologies cover a variety of delivery methods, including DPIs and HFA formulations ofMDIs. These technical capabilities form the foundation for our strategy to develop products with high barriers tomarket entry targeting a wide range of indications.·Vertically integrated infrastructure. We are a vertically integrated company with the demonstrated ability toadvance a product candidate from the research stage through commercialization. Our capabilities include strongresearch and development expertise, sophisticated pharmaceutical engineering capabilities, comprehensivemanufacturing capabilities, including the ability to synthesize and manufacture our own API, a strict qualityassurance system, extensive regulatory and clinical experience and established marketing and distributionrelationships. We believe our vertical integration allows us to achieve better operating efficiencies, acceleratedproduct development and internal control over product quality.·Experienced management team with deep scientific expertise. Our management team has a successful track recordin product development, project management, quality assurance and sales and marketing, as well as establishedrelationships with our key customers, partners and suppliers. Our research and development leadership has deepexpertise in areas such as pharmaceutical formulation, process development, in vivo studies, analytical chemistry,physical chemistry, drug delivery and clinical research. We believe that our scientific and technical expertise,coupled with our management team’s experience and industry relationships, will enable us to successfully expandour position with respect to our current products and establish a meaningful market position for our productcandidates.Our StrategyOur goal is to be an industry leader in the development, manufacturing and marketing of technically-challenging injectable andinhalation pharmaceutical products. To achieve this goal, we are pursuing the following key strategies:·Diversify our revenues by commercializing our product candidates. Assuming we are successful in developing andobtaining regulatory approvals, we plan to commercialize our product candidates and thereby diversify our sourcesof revenues. We have 2 1 product candidates in various stages of development, including 1 2 generic ANDAs, threegeneric biosimilar product candidates and six proprietary product candidates. We also expect to expand our internalsales and marketing capabilities and, in some cases, enter into strategic alliances with other pharmaceuticalcompanies, to drive market penetration for our product candidates.·Focus on high-margin generic product opportunities. We believe that we have significant opportunities for growthdriven by our technical expertise in the development of generic product candidates with high technical barriers tomarket entry. We believe that if these product candidates are commercialized, they are likely to face lesscompetition than less technically-challenging generic products, which may enable us to earn higher margins for alonger period of time. We believe that generic competition for these products is likely to be limited because ofchallenges in product development, manufacturing or sourcing of raw materials or APIs.6 Table of Contents·Develop proprietary products. We currently have six proprietary product candidates at various stages ofdevelopment targeting a broad range of indications. We believe that proprietary products tend to face lesscompetition than generic products due to market exclusivity, intellectual property protection and other barriers toentry. For these reasons, we believe that our proprietary products will provide us with the opportunity for highermargins and long-term revenue growth.·Leverage our vertically-integrated infrastructure to drive operational efficiencies. We believe our vertically -integrated infrastructure provides significant benefits including better operating efficiencies, accelerated productdevelopment and internal control over product quality. Our ability to manufacture our own API allows us to developproducts that other companies may not focus on due to the uncertainty of API supply. In addition, our vertically -integrated infrastructure, including our research and development capabilities, allows us to conduct technically-challenging studies in-house. We believe this vertically - integrated   infrastructure has led , and will continue tolead , to a competitive portfolio of products and product candidates.·Target and integrate acquisitions of pharmaceutical companies, products and technologies. We have ademonstrated ability to identify, acquire and integrate pharmaceutical companies, products and technologies tocomplement our internal product development capabilities. We have acquired International Medication Systems,Limited, or IMS, Armstrong Pharmaceuticals, Inc., or Armstrong, Nanjing Puyan Pharmaceutical Technology Co.,Ltd. (which we renamed Amphastar Nanjing Pharmaceuticals Co., Ltd.), or ANP ,   and Merck’s APIManufacturing Business in Éragny-sur-Epte, France, in connection with which , we established our Frenchsubsidiary, Amphastar France Pharmaceuticals, S.A.S., or AFP . P roducts we have acquired include Cortrosyn andEpinephrine Mist, and trade names such as Primatene . We believe that our scientific and managerial expertise andour integration experience have improved the quality of the product lines and companies that we have acquired,which has had , and we believe will continue to have, a positive effect on our results of operations. For example, ifapproval is received from the FDA, we plan to have our acquired subsidiary ANP provide us with access to certainraw materials for the manufacture of the API for our enoxaparin product and eventually to manufacture API for ourother products and product candidates.Our Technical CapabilitiesWe develop, manufacture, market and sell generic and proprietary products targeting injectable and inhalation markets .  We alsomanufacture and sell insulin API.·Injectable. Our injectable product technologies enable us to develop and manufacture generic and proprietaryinjectables in liquid, lyophilized, suspension and emulsion forms, as well as pre-filled syringes. We have multipleinjectable facilities that include aseptic filling lines dedicated to the sterile manufacture and fill of injectableproducts. Additionally, we maintain compliance with cGMP regulations which has enabled us to obtain regulatoryapprovals and support commercial supply.·Inhalation. We are focused on developing a range of generic and proprietary inhalation products utilizing a varietyof delivery technologies. We have expertise in formulating HFA - based MDIs as well as packaging our inhalationdrugs in DPIs, blister packs and other forms for loading in a variety of inhalation devices. As with our injectableproducts, we maintain compliance with cGMP regulations , which we believe will enable us to obtain regulatoryapprovals and support commercial supply.7 ® ® Table of ContentsWe have advanced capabilities that enable us to focus on developing technically-challenging products.·Characterization of complex molecules. Characterization of complex molecules includes a determination ofphysiochemical properties, biological activity, immunochemical properties and purity. Such characterization isimportant in the development of a generic product that is the same as a reference drug product, which in turn allowsthe generic drug developer to demonstrate such “sameness” to the FDA. Complex molecule drugs typically havelarge molecules composed of a mixture of molecules that differ very slightly from one another. These slightvariances make complex molecules difficult to characterize. We have developed analytical tools that have enabledus to characterize complex molecules in our products and product candidates. We believe we have the technology todevelop a variety of additional analytical tools that will enable us to characterize other complex molecules,including peptide and protein - based products.·Immunogenicity. The ability of an antigen to elicit immune responses is called immunogenicity. Unwantedimmunogenicity , which is strongly linked with protein drug products, occurs when a patient mounts an undesiredimmune response against a drug therapy. As a result, the FDA has signaled that they may require immunogenicitystudies as part of the new pathway for biosimilars and biogenerics, and in the past the FDA has required thesestudies in connection with the approval of products with complex molecules. We gained expertise inimmunogenicity by performing immunogenicity studies in connection with the FDA approval process for ourenoxaparin product. We believe that our experience in conducting these difficult immunogenicity studies will be ofprimary importance in our future efforts to develop complex molecules, biosimilar and biogeneric productcandidates.·Peptide and protein product development and production. The development of peptide and protein drug productsutilizes characterization technology and immunogenicity studies as well as recombinant DNA, or rDNA, APImanufacturing technology. We have experience in the use of rDNA manufacturing technology which includes thegenetic engineering of host cells, fermentation to promote cell culture growth and isolation and purification of thedesired protein from the cell culture. Through each step, testing is required to ensure that only the desired protein isincluded in the finished product. We believe that this technology will allow us to develop protein and peptide drugproducts.·Particle engineering. Particle engineering is important in the field of pulmonary drug delivery as there is a directrelationship between the properties of a particle and its absorption by the lungs. We believe our expertise andtechnology applicable to particle engineering and physical chemistry allows us to engineer the size, shape, surfacesmoothness and distribution of particles to develop inhalation products that are more easily dispersed throughtargeted areas. We believe this expertise will allow us to formulate difficult to disperse inhalation products.·Sustained-release. We have developed technology aimed at improving drug delivery through sustained-releaseinjectable products. The purpose of our sustained-release technology is to create products that require less dosingfrequency and that we believe can diminish the fluctuations of drug concentrations in a patient’s blood stream thatotherwise require more frequent dosing. We plan to use our sustained-release technology to develop both genericand proprietary products.Business SegmentsOur performance will be assessed and resources will be allocated based on the following two reportable segments: (1) finishedpharmaceutical products and (2) active pharmaceutical ingredients, or API products . The finished pharmaceutical productssegment currently manufactures, markets and distributes enoxaparin, Cortrosyn ,   Amphadase ,   naloxone, lidocaine jelly, aswell as various other critical and non-critical care drugs. The API segment currently manufactures and distributes recombinanthuman insulin and porcine insulin.   Information reported herein is consistent with how it is reviewed and evaluated by our chiefoperating decision maker. Factors used to identify our segments include markets, customers and products . 8 ® ® Table of ContentsFor more information regarding our segments, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes toConsolidated Financial Statements – Segment Information."Finished Pharmaceutical Product SegmentOur Marketed ProductsWe currently manufacture and sell 16 products in our finished pharmaceutical product segment. The following is a description ofproducts in our existing portfolio.EnoxaparinEnoxaparin is a difficult to manufacture injectable form of low molecular weight heparin that is used as an anticoagulant, which isindicated for multiple indications, including the prevention and treatment of deep vein thrombosis. Enoxaparin is difficult toproduce in part because the API is not easily obtained or manufactured. We manufacture the API for our enoxaparin product andperform all subsequent manufacturing of the finished product in-house. In January 2012, we commenced sales of our enoxaparinproduct. For the years ended December 31, 2015, 2014, and 2013, we recorded net revenues from enoxaparin of $84.5 million,$107.5 million, and $145.9 million, respectively.Other Marketed ProductsWe have 15 other products that we currently market. Other marketed products include the following:·Cortrosyn (cosyntropin for injection), which is a lyophilized powder that is indicated for use as a diagnostic agent in thescreening of patients with adrenocortical insufficiency;·Amphadase , which is a bovine-sourced hyaluronidase injection and is used as an adjuvant in subcutaneous fluidadministration for achieving hydration, to increase absorption and dispersion of other injected drugs, and insubcutaneous urography for improving absorption of radiopaque agents;·Lidocaine jelly, which is a local anesthetic product used primarily for urological procedures;·Lidocaine topical solution, which is used as a local anesthetic for a variety of procedures;·Phytonadione injection, which is Vitamin K that is used for newborn babies;·our portfolio of emergency syringe products, which include critical care drugs, such as morphine, atropine, calciumchloride, dextrose, epinephrine, lidocaine, naloxone and sodium bicarbonate, which are provided in pre-filled syringesand are designed for emergency use in hospital settings;·Epinephrine in vial form; and·Lorazepam injection, which is a sedative used prior to surgery and medical procedures.For the years ended December 31, 2015 , 201 4 , and 201 3 , we recorded net revenues from these other marketed products of $140. 4 million, $91.0 million ,   and $83.8 million, respectively.Our Product CandidatesWe seek to develop product candidates with high technical barriers to competitive market entry that leverage our technicalcapabilities and other competitive advantages. We are focused on both generic and proprietary product candidates in theinjectable and inhalable markets . The product candidates in our pipeline are in various stages of development, with a number ofthese candidates still in early stages of development. We currently have 2 1 product9 ® ® Table of Contentscandidates in our pipeline, including 1 2 generic ANDAs, three generic biosimilar product candidates and six proprietary productcandidates.The development, regulatory approval for and commercialization of our product candidates are subject to numerous risks. See“Risk Factors” for additional information.Generic Product CandidatesWe generally employ a strategy of developing generic product candidates that possess a combination of factors that presenttechnical barriers to competition , including difficult formulations, which require complex characterizations, difficultmanufacturing requirements and/or limited availability of raw materials .   W e believe that such factors will make these productcandidates less susceptible to competition and pricing pressure. We currently have 1 2 generic ANDAs and three genericbiosimilar product candidates at various development stages that leverage our various technical capabilities, including:·injectable technologies, which include various delivery methods and sizes of pre-filled syringes, vials in solution,jelly, suspension and lyophilized forms;·inhalation technologies, which include MDIs ,   and DPIs;·nasal delivery systems; and·sophisticated analytical technologies, which include characterization and immunogenicity studies for complexmolecules, particle engineering, sustained-release technology and peptide, protein and DNA analysis.The following table summarizes our current portfolio of the 1 2 generic ANDAs and three generic biosimilar product candidatesin development.     Applied Technical Capability               Peptide and Delivery Number of Therapeutic     Particle   Protein Technology Candidates Area Characterization Immunogenicity Engineering Sustained-Release Technology Injectable  5 Endocrinology   ü   ü     ü   ü Injectable  1 Hematology   ü         Injectable  1 ReproductiveSystem   ü       ü   Injectable  2 Neurology   ü         Inhalation  6 Respiratory   ü     ü      Our generic product candidates are at various stages of development, ranging from early formulation work to bioequivalencestudies or the filing of an ANDA. Of these product candidates, five are in early - stage development prior to bioequivalencestudies.In March 2016, we acquired fourteen ANDAs, representing eleven different injectable chemical entities from HikmaPharmaceuticals PLC. We plan to transfer the product candidates to our facilities in California, which will require FDA approvalbefore the product candidates can be launched.Proprietary Product CandidatesOur integrated technical skills and expertise provide a strong basis for the development of proprietary drug candidates. Theseskills include new chemical entity assessment, synthesis technology, formulation development, characterization analysis andimmunogenicity studies, among others.With respect to our proprietary pipeline strategy, we currently have six proprietary drug candidates at various development stagesthat leverage our various technical capabilities. The following table summarizes our proprietary product candidates for whichNDAs have been filed with the FDA.10 Table of Contents       Applied Technical Capability               Peptide and Delivery   Therapeutic     Particle   Protein Technology Candidates Indication Characterization Immunogenicity Engineering Sustained-Release Technology Inhalation Primatene HFA Asthma       ü      Primatene HFAPrimatene HFA, an over-the-counter epinephrine inhalation product candidate, is intended to be used for the temporary relief ofmild symptoms of intermittent asthma. We developed Primatene HFA to replace the over-the-counter CFC formulation of ourPrimatene Mist product which was withdrawn for environmental reasons under the Montreal Protocol. We acquired theexclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related toPrimatene Mist, and the associated CFC inventory, from Wyeth Consumer Healthcare Division in 2008 for $33.1 million. At thetime of the transaction the Environmental Protection Agency was reviewing a possible ban on all CFC formulated products. Inour first full year of sales of the CFC formulation of Primatene Mist, we generated cash flows from sales of the product inexcess of the purchase price. We filed an investigational new drug application, or IND, for Primatene   HFA for mild symptomsof intermittent asthma in October 2009.  We filed an NDA for Primatene HFA in 2013. In February 2014, the FDA held a joint meeting of the Nonprescription DrugsAdvisory Committee and its Pulmonary Allergy Drugs Advisory Committee, which we refer to as the Committee, to discuss theNDA for Primatene HFA. The Committee voted 14 to 10 that the data in the NDA supported efficacy, but voted 17 to 7 thatsafety had not been established for the intended over-the-counter use. The Committee also voted 18 to 6 that the product did nothave a favorable risk-benefit profile for the intended over-the-counter use, and individual Committee members providedrecommendations for resolving their concerns. On May 22, 2014, we received a CRL from the FDA, which require d additionalnon-clinical information, label revisions and follow-up studies (label comprehension, behavioral /human factors and actual use) toassess consumers’ ability to use the device correctly to support approval of the product in the over-the-counter setting. We metwith the FDA in October 2014 to discuss preliminary data results and to clarify the FDA requirements for further studies. Wereceived further advice regarding our ongoing studies from the FDA in January 2016 and w e   are currently in the process ofgenerating the remaining data required by the CRL and plan to submit an NDA a mendment that we believe will address theFDA’s concerns. However, there can be no guarantee that any amendment to our NDA will result in timely approval of theproduct candidate or approval at all.Other Proprietary Product CandidatesIn addition to Primatene HFA , we have five other proprietary product candidates in development , which include two newchemical entity drug candidates. These proprietary product candidates target indications including diabetes, asthma,anticoagulants, osteoporosis and Alzheimer’s disease. These product candidates incorporate a wide variety of our technicalcapabilities, such as particle engineering, sustained-release technology and peptide and protein analysis and utilize our inhalationand injectable delivery technologies.API SegmentWe began to manufacture and sell two API products, recombinant human insulin, or RHI , API and porcine insulin API , as aresult of our acquisition of Merck Sharpe & Dohme’s, or Merck’s, API manufacturing business in Éragny ‑sur ‑Epte, France, orthe Merck API Transaction , in April 2014. The purpose for the acquisition was for our vertical integration strategy as we aretargeting certain finished products for the injectable insulin market. However, we continue to sell RHI to third parties, whichhelps fund our vertical integration strategy including the ongoing technology transfer from Merck to AFP. In July 2014, we entered into a supply agreement with MannKind Corporation, or MannKind, to supply them with RHI for use intheir product Afrezza , and in January 2015, we entered into a supply option agreement with MannKind to supply additionalquantities, as needed. 11 ®® ® ® ® ® ® ® ® ® ® ® Table of ContentsFor the years ended December 31, 2015 and 201 4 , we recorded net revenues of $2 6 . 6 million and   $ 12 .0 million,respectively ,   from our API products.Acquisition of Merck’s API Manufacturing BusinessOn April 30, 2014, we completed our acquisition of the Merck’s API manufacturing business in Éragny-sur-Epte, France , whichmanufactures porcine insulin API and recombinant human insulin API. The purchase price of the transaction totaled€24.8 million, or $34.4 million   on April 30, 2014 , subject to certain customary post ‑closing adjustments and currency exchangefluctuations. The terms of the purchase include multiple payments over four years as follows:       U.S.   Euros Dollars   (in thousands) At Closing, April 2014 €13,252 $18,352 December 2014  4,899  5,989 December 2015  3,186  3,483 December 2016  3,186  3,475 December 2017  500  545   €25,023 $31,844  In order to facilitate the acquisition, we established a subsidiary in France, AFP. We will continue the current site manufacturingactivities, which consist of the manufacturing of porcine insulin API and recombinant human insulin API. As part of thetransaction, we have entered into various additional agreements, including various supply agreements, as well as the assignmentand /or licensing of patents under which Merck was operating at this facility. In addition, certain existing customer agreementshave been assigned to AFP. Currently, we are in the process of transferring the manufacturing of starting material for RHI fromMerck to AFP. This process will require capital expenditures at AFP and is expected to take two or more years to complete. Supply Agreement with MannKind CorporationOn July 31, 2014, we entered in a supply agreement with MannKind , pursuant to which we will manufacture for and supply toMannKind certain quantities of RHI, for use in MannKind’s product Afrezza . Under the terms of the supply agreement, we willbe responsible for manufacturing the RHI in accordance with MannKind’s specifications and agreed-upon qualitystandards. MannKind has agreed to purchase annual minimum quantities of RHI under the supply agreement of an aggregateamount of approximately €120.1 million, or approximately $146.0 million, in cal endar years 2015 through 2019.MannKind paid a non-refundable reservation fee to us in the amount of €11.0 million, o r approximately $14.0 million upon entryinto the agreement.  Under the agreement, the non-refundable reservation fee was considered as partial payment for the purchasecommitment quantity for 2015. We classified the amount as deferred revenue. As of December 31, 2015, the full amount of thedeferred revenue has been recognized.Unless earlier terminated, the term of the supply agreement expires on December 31, 2019 , and can be renewed for additional,successive two-year terms upon 12 month ’ s written notice given prior to the end of the initial term or any additional two-yearterm. MannKind and we each have customary termination rights, including termination for material breach that is not curedwithin a specific time frame or in the event of liquidation, bankruptcy, or insolvency of the other party. In addition, MannKindmay terminate the supply agreement upon two years’ prior written notice to us without cause or upon 30 days prior written noticeto us if a controlling regulatory authority withdraws approval for Afrezza ; provided, however, in the event of a terminationpursuant to either of these scenarios, the provisions of the supply agreement require MannKind to pay the full amount of allunpaid purchase commitments due over the initial term within 60 calendar days of the effective date of such termination. 12 ® ® Table of ContentsIn January 2015, we entered into a supply option agreement with MannKind, pursuant to which MannKind will have the option topurchase RHI, for use in MannKind’s product Afrezza , in addition to the amounts specified in the July 2014 s upply a greement.Under the agreement, MannKind has the option to purchase additional RHI in calendar year s 2016 through 2019. In the eventMannKind elects not to exercise its minimum annual purchase option for any year, MannKind shall pay us a capacity cancellationfee.By mutual agreement, MannKind did not purchase the full contractually obligated amount in 2015. The 2015 sales of RHI toMannKind were $ 20.8 million. We are currently in discussions with MannKind regarding the timing of future purchases. InOctober 2015, MannKind informed us they were not going to exercise the option to purchase additional quantities of RHI for2016 under the option agreement.  Accordingly , MannKind paid us a capacity cancellation fee in 2015 for 2016. We recognizedthis payment as revenue in 2015. Research and DevelopmentWe have approximately 238 employees dedicated to research and development with expertise in areas such as pharmaceuticalformulation, process development, toxicity stud ies , analytical, synthetic and physical chemistry, drug delivery, devicedevelopment, equipment and engineering, clinical research statistical analysis, etc. Our focus on developing products with highbarriers to market entry requires a significant investment in research and development, including clinical development. Inparticular, developing proprietary products that are reformulations of existing proprietary compounds often requires clinical trialsto gain regulatory approval , and we have a team dedicated to designing and managing clinical trials. We have successfullycompleted several clinical trials for some of our product candidates and are in the process of planning clinical trials for otherproduct candidates under development.We have made, and will continue to make, substantial investments in research and development. Research and development costsfor the years ended December 31, 2015, 2014 and 2013 were $37.1 million, $28.4 million, and $33.0 million, respectively, whichrepresent 15%, 14%   and 14% of our net revenues for that period, respectively.BacklogA significant portion of our customer shipments in any fiscal year relate to orders received and shipped in that fiscal year,resulting in low product backlog relative to total shipments.   Backlog is not material and not a meaningful indicator in any givenperiod of our ability to achieve any particular level of overall revenue or financial performance.Manufacturing and FacilitiesOur manufacturing facilities are located in Rancho Cucamonga and South El Monte, California; Canton, Massachusetts; É ragny-sur-Epte, France; and Nanjing, China. We own or lease a total of 60 buildings at six locations in the U.S., France and China, thatcomprise 1.6   million square feet of manufacturing, research and development, distribution, packaging, laboratory, office andwarehouse space. Our facilities are regularly inspected by the FDA in connection with our product approvals, and we believe thatall of our facilities are being operated in material compliance with the FDA’s cGMP regulations.We are currently expanding our facility in Nanjing, China and we expect that the investment in expanding our facility in Chinawill require a total of up to approximately $15.0 million . We currently have contractual commitments with third partiesobligating us to undertake this investment.We acquired Merck’s API manufacturing business in É ragny-sur-Epte, France in April 2014 , which manufactures porcineinsulin API and RHI API, and we expect to continue the current site activities.We believe that our current manufacturing capacity is adequate for the near term. We have in the past approached capacity at oneof our facilities largely as a result of the FDA’s request that we reintroduce certain previously discontinued products to help copewith a nation-wide shortage of these products. We believe that these capacity issues have been ameliorated as a result of certainother manufacturers re-entering the market and increasing the production of the products that were subject to the shortage.13 ® Table of ContentsRaw Material and Other SuppliersWe depend on suppliers for raw materials, APIs and other components that are subject to stringent FDA requirements. In somecases, we obtain raw materials, components or API s used in certain of our products from single sources. Currently we obtain thestarting material, heparin USP, for our enoxaparin product, epinephrine for our Primatene HFA product candidate and API forcertain of our other marketed products from single sources. If we experience difficulties acquiring sufficient quantities of requiredmaterials or products from our existing suppliers, or if our suppliers are found to be non-compliant with the FDA’s quality systemregulation, or QSR, cGMPs or other applicable laws or regulations, we would be required to find alternative suppliers. Obtainingthe required regulatory approvals to use alternative suppliers may be a lengthy and uncertain process during which we could losesales. If our primary suppliers become unable or unwilling to perform, we could experience protracted delays or interruptions inthe supply of materials which would ultimately delay our manufacture of products for commercial sale, which could materiallyand adversely affect our development programs, commercial activities, operating results and financial condition.If our suppliers encounter problems during manufacturing, establishing additional or replacement suppliers for these materialsmay take a substantial period of time, as suppliers must be approved by the FDA. Further, a significant portion of our rawmaterials may be available only from foreign sources, which are subject to the special risks of doing business abroad. Forexample, heparin USP is the starting material for the production of the API in our enoxaparin product. We have established asupply chain for heparin that originates in China and have implemented validated technology processes designed to screen andtest incoming starting material, which includes methods currently required by the FDA. However, the FDA has requiredcompanies importing heparin to test imported heparin using specific screening methods to detect certain contaminants and it hasincreased its scrutiny of Chinese facilities that produce heparin for the U.S. market. For example, in August 2008, the FDAinspected two facilities in China belonging to suppliers in our heparin supply chain and issued warning letters, one of whichneeded to be resolved as a precondition to approving the ANDA for our enoxaparin product candidate in September 2011. If thefacility owned by our ANP subsidiary is qualified by the FDA, we plan to have ANP provide us with starting materials for themanufacture of API for enoxaparin. We also plan to have our subsidiar ies eventually manufacture APIs for not only enoxaparin,but also our other products and product candidates.Sales and MarketingOur products are primarily marketed and sold to hospitals, long-term care facilities, alternate care sites, clinics and doctors’offices. Most of these facilities are members of one or more group purchasing organizations, which negotiate collectivepurchasing agreements on behalf of their members. These facilities purchase products through specialty distributors andwholesalers. We have relationships with the major group purchasing organizations in the U.S. We also have relationships withmajor specialty distributors, wholesalers and retailers who distribute pharmaceutical products nationwide.The following table provides information regarding the percentage of our net revenues that is derived from each of our majorcustomers and partners:   % of Net Revenues   Year Ended   December 31,   2015 2014 2013         Allergan plc  21%  30%  35%AmerisourceBergen Corporation 17%  15%  15%Cardinal Health, Inc. 17%  14%  13%McKesson Corporation 22%  22%  26%(1)In June 2015, Actavis plc adopted Allergan plc as its new global name. Our marketing department is responsible for establishing and maintaining contracts and relationships with the group purchasingorganizations, distributors, retailers, wholesalers and, occasionally, directly with hospitals or long-term care14 ® (1)Table of Contentsfacilities. One or more of our proprietary product candidates may require deployment of a sales force either directly or through astrategic partner.Under an agreement with Allergan plc, or Allergan, we are paid a fixed cost per unit of our enoxaparin product sold to A llerganand also share in the gross profits from Allergan sales of the product in the U.S. retail pharmacy market. We may enter intosimilar agreements with distributors or strategic partners in the future.For the years ended December 31, 2015, 2014, and 2013, we generated 2%, 4% and 1% of our total revenue, respectively, fromcustomers located outside of the United States. Other financial information about our segment and geographic areas isincorporated herein by reference to Note 6 of the Notes to Consolidated Financial Statements included elsewhere in this report.CompetitionThe majority of our marketed products are generic products. We face and will face significant competition for our products andproduct candidates from pharmaceutical companies that focus on the generic injectable and inhalation markets such as Hospira, Inc., Sagent Pharmaceuticals, Inc., Akorn, Inc., Sandoz Inc., Mylan Inc. , Fresenius Kabi USA and Teva PharmaceuticalIndustries Ltd. Competition in the generic pharmaceutical industry has increased as producers of branded products have enteredthe business by creating generic drug subsidiaries, purchasing generic drug companies, or licensing their products to genericmanufacturers prior to patent expiration and/or as their patents expire. Therefore, our competitors also include the innovatorcompanies of our generic drug products. For example, enoxaparin is currently marketed by Sanofi S.A., or Sanofi, under thebrand name Lovenox . Sanofi also markets its authorized generic enoxaparin product through its subsidiary, Winthrop , and alsothrough Fresenius Kabi USA . Sandoz and Teva Pharmaceuticals Industries Ltd. also market a generic version of enoxaparin.Other companies may have filed an ANDA with the FDA for its generic version of enoxaparin. The presence of these current andprospective competitive products may have an adverse effect on our market share, revenue and gross profit from our enoxaparinproduct.Similarly, we will face significant competition for our proprietary product candidates. Our competitors vary depending uponproduct categories, and within each product category, upon dosage strengths and drug-delivery systems. Based on total assets,annual revenues and market capitalization, we are smaller than many of our national and international competitors with respect toboth our generic and proprietary products and product candidates. Many of our competitors have been in business for a longerperiod of time, have a greater number of products on the market and have greater financial and other resources than we do. It isalso possible that developments by our competitors will make our generic or proprietary products and product candidatesnoncompetitive or obsolete.For pharmaceutical companies, the most important competitive factors are scope of product line, ability to timely develop newproducts and relationships with group purchasing organizations, retailers, wholesalers and customers. Sales of genericpharmaceutical products tend to follow a pattern based on regulatory and competitive factors. As patents for brand-name productsand related exclusivity periods expire, the first generic pharmaceutical manufacturer to receive regulatory approval for genericversions of products is typically able to achieve significant market penetration and higher margins. As competing genericmanufacturers receive regulatory approval on the same products, market size, revenue and gross profit typically decline. The levelof market share and price will be affected, which will in turn affect the revenue and gross profit attributable to a particular genericpharmaceutical product. This impact is normally related to the number of competitors in that product’s market and the timing ofthat product’s regulatory approval. We must develop and introduce new products in a timely and cost-effective manner andidentify products with significant barriers to market entry in order to grow our business.15 ® Table of ContentsGovernment Regulation and Price ConstraintsIn the United StatesGeneralPharmaceutical companies and their prescription brand and generic pharmaceutical products are subject to extensive pre- andpost-market regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, or FFDCA, the Public Health Service Act of1944, or PHSA, and regulations implementing those statutes, with regard to the testing, manufacturing, safety, efficacy, labeling,storage, record-keeping, advertising and promotion of such products, and by comparable agencies and laws in foreign countries.For many drugs (drugs falling within the definition of “new drug” in the FFDCA), FDA approval is required before the productcan be marketed in the U.S. All applications for FDA approval must contain, among other things, comprehensive andscientifically reliable information relating to pharmaceutical formulation, stability, manufacturing, processing, packaging,labeling and quality control. These applications must also contain data and information related to safety, effectiveness,bioavailability and/or bioequivalence.In addition, many of our activities are subject to the jurisdiction of other federal regulatory and enforcement departments andagencies, such as the Department of Health and Human Services, or HHS, Office of the Inspector General, or OIG, the FederalTrade Commission (which also has the authority to regulate the advertising of consumer healthcare products, including OTCdrugs), the Department of Justice, the Drug Enforcement Administration, or DEA, the Veterans Administration, the Centers forMedicare and Medicaid Services and the Securities and Exchange Commission, or SEC. Individual states, acting through theirattorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumerprotection and false advertising laws.FDA Approval and Regulatory ConsiderationsPrescription generic and branded pharmaceutical products are subject to extensive regulation by the FDA under the FFDCA andPHSA and regulations implementing those statutes, with regard to the testing, manufacturing, safety, efficacy, labeling, storage,record-keeping, advertising and promotion of such products, and regulation by other state, federal and foreign agencies under thelaws that they enforce. For many drugs (drugs falling within the definition of “new drug” in the FFDCA), including the drugs inour current drug portfolio, FDA approval is required before marketing in the U.S. Applications for FDA drug approval mustgenerally contain, among other things, information relating to pharmaceutical formulation, stability, manufacturing, processing,packaging, labeling, quality control and either safety and effectiveness or bioequivalence. There are two drug approval processesunder the FFDCA — an ANDA approval process for generic drugs and an NDA approval process for new drugs that cannot beapproved in ANDAs. For drugs that are “biological products” within the meaning of the PHSA, there are two different approva l  processes — a biological license application, or BLA, approval process for original biological products and a biosimilarapplication approval process for biosimilar products that are approved based on their similarity to biologicals that were previouslyapproved in BLAs.The ANDA Approval ProcessOur generic drug product candidates cannot be lawfully marketed unless we obtain FDA approval. The Drug Price Competitionand Patent Term Restoration Act of 1984, commonly known as “the Hatch-Waxman Act,” established abbreviated FDA approvalprocedures for drugs that are shown to be bioequivalent to drugs previously approved by the FDA through its NDA process,which are commonly referred to as the “innovator” or “reference” drugs. Approval to market and distribute these bioequivalentdrugs is obtained by filing an ANDA with the FDA. An ANDA is a comprehensive submission that contains, among other things,data and information pertaining to the API, drug product formulation, specifications, stability, analytical methods, manufacturingprocess validation data, quality control procedures and bioequivalence. Rather than demonstrating safety and effectiveness, anANDA applicant must demonstrate that its product is bioequivalent to an approved reference drug. In certain situations, anapplicant may submit an ANDA for a product with a strength or dosage form that differs from a reference drug based upon FDAapproval of an ANDA Suitability Petition. The FDA will approve an ANDA Suitability Petition if it finds that the product doesnot raise questions of safety and efficacy requiring new clinical data. ANDAs generally cannot be16 Table of Contentssubmitted for products that are not bioequivalent to the referenced drug or that are labeled for a use that is not approved for thereference drug. Applicants seeking to market such products can submit an NDA under Section 505(b)(2) of the FFDCA withsupportive data from clinical trials.Upon approval of an NDA or ANDA, the FDA lists the product in a publication entitled “Approved Drug Products withTherapeutic Equivalence Evaluations,” which is commonly known as the “Orange Book.” In the case of an NDA, the FDA alsolists patents identified by the NDA applicant as claiming the drug or an approved method of using the drug. Any applicant whofiles an ANDA must certify to the FDA with regard to each relevant patent that (1) no patent information has been submitted tothe FDA; (2) the patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval issought after patent expiration; or (4) the patent is invalid or will not be infringed upon by the manufacture, use or sale of the drugproduct for which the ANDA is submitted. This last certification is known as a Paragraph IV certification. A notice of theParagraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder ofthe approved NDA to which the ANDA refers. If the NDA holder submits the patent information to FDA prior to submission ofthe ANDA and the NDA holder or patent owner(s) sues the ANDA applicant for infringement within 45 days of its receipt of thecertification notice, the FDA is prevented from approving that ANDA until the earlier of 30 months from the receipt of the noticeof the Paragraph IV certification, the expiration of the patent or such shorter or longer period as may be ordered by a court. Thisprohibition is generally referred to as the 30-month stay. An ANDA applicant that is sued for infringement may file acounterclaim to challenge the listing of the patent or information submitted to FDA about the patent.Generally, if an ANDA applicant (1) files a substantially complete ANDA with a Paragraph IV certification on the first day thatany ANDA applicant files an application with such a certification based on the same reference drug and (2) provides appropriatenotice to the NDA holder, and all patent owner(s) for a particular generic product, the applicant may be awarded a delay in theapproval of other subsequently filed ANDAs with Paragraph IV certifications based on the same reference drug. This statutorydelay is commonly referred to as 180-day exclusivity. A substantially complete ANDA is one that contains all the informationrequired by the statute and the FDA’s regulations, including the results of any required bioequivalence studies. The FDA mayrefuse to accept the filing of an ANDA that is not substantially complete or may determine during substantive review of theANDA that additional information, such as an additional bioequivalence study, is required to support approval. Such adetermination may affect an applicant’s first to file status and eligibility for 180-day exclusivity. The MMA provides that the 180-day exclusivity delay ends 180 days after the first commercial marketing of the ANDA product. This exclusivity may be forfeitedunder a number of different circumstances, including: (1) failure to market within certain prescribed periods of time followingcertain events related to submission of the application, approval of the application, court decisions and settlements and patentwithdrawals from the Orange Book; (2) an amendment or withdrawal of the Paragraph IV certification or certifications uponwhich the exclusivity was based; (3) failure to obtain tentative approval within certain prescribed time periods (30, 36, or40 months after submission of the ANDA); (4) an agreement with the NDA holder, patent owner or another ANDA applicant thatis determined by a court or the FTC to violate provisions of antitrust laws; (5) withdrawal of the ANDA; or (6) expiration ofpatent or patents upon which exclusivity is based.The 180-day exclusivity provisions described above were passed in the Medicare Prescription Drug Improvement andModernization Act of 2003, or the MMA, and do not apply where the first ANDA with a Paragraph IV certification submitted forthe reference drug was filed before December 8, 2003. In this circumstance, the pre-MMA exclusivity provisions apply. Underthese provisions, the 180-day exclusivity delay ends 180 days after the first commercial marketing of the ANDA product or acourt decision holding the patent invalid, unenforceable or not infringed, whichever comes first. In addition, under the pre-MMAexclusivity provisions, exclusivity is awarded separately to the first applicant or applicants submitting an ANDA with aparagraph IV certification for each patent, resulting in the possibility that different ANDA applicants will hold differentexclusivities on different patents, resulting in situations in which an applicant that holds an exclusivity on one patent is subject toanother applicant’s exclusivity on a different patent. The FDA has addressed these situations through policies involvingexclusivity sharing. The pre-MMA exclusivity provisions do not provide for exclusivity forfeiture.ANDA approvals can be delayed by exclusivities awarded to the holder of the NDA for the reference drug. The FFDCA providesfive-year exclusivity to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, meaning that the FDAhas not previously approved any other drug containing the same active moiety. This exclusivity17 Table of Contentsgenerally prohibits the submission of an ANDA for any drug product containing the same active moiety during the five-yearexclusivity period. However, submission of an ANDA with a Paragraph IV certification is permitted after four years, and if apatent infringement lawsuit is brought within 45 days after such certification, FDA approval of the ANDA is delayed until7.5 years after the NCE approval date. The FFDCA also provides three-year exclusivity for the approval of new and supplementalNDAs for product changes that require new clinical investigations (other than bioavailability studies) that were conducted orsponsored by the applicant. These changes include, among other things, new indications, dosage forms, routes of administrationor strengths of an existing drug and new uses.ANDA approvals can also be delayed by orphan drug exclusivity, pediatric exclusivity and exclusivity for certain new antibioticdrugs. The FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally adisease or condition that affects fewer than 200,000 individuals in the U.S. or more than 200,000 individuals in the U.S. and forwhich there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for this type ofdisease or condition will be recovered from sales in the U.S. for that drug. Seven-year orphan drug exclusivity is available to aproduct that has orphan drug designation and that receives the first FDA approval for the indication for which the drug has suchdesignation. Orphan drug exclusivity prevents approval of another application for the same drug, for the same orphan indication,for a period of seven years, regardless of whether the application is a full NDA or an ANDA, except in limited circumstances,such as a showing of clinical superiority to the product with orphan exclusivity. Pediatric exclusivity, if granted, provides anadditional six months to an existing exclusivity or statutory delay in approval resulting from a patent certification. This six-monthexclusivity, which runs from the end of other exclusivity protection or patent delay, may be granted based on the voluntarycompletion of a pediatric study in accordance with an FDA-issued written request for such a study. The FFDCA also providesexclusivity for certain antibiotic drugs for serious or life-threatening infections that FDA designates as “qualified infectiousdisease products.” This exclusivity extends other exclusivities for the same drug by five years, but does not extend patent-relateddelays in approval.The NDA Approval ProcessThe NDA approval process is generally far more demanding than the ANDA process, depending on whether the applicant issubmitting a “full NDA” containing all of the data and information required for approval of a new drug or a “Section 505(b)(2)NDA” which is a more limited submission that is generally utilized for modifications to previously approved products.The “Full NDA”The approval process for a full NDA generally involves:·completion of preclinical laboratory and animal testing in compliance with the FDA’s good laboratory practice, orGLP, regulations;·submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which mustsatisfy the FDA and become effective before human clinical trials may begin;·performance of adequate and well-controlled human clinical trials to establish the efficacy of the proposed drugproduct for each intended use;·satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product isproduced to assess compliance with the FDA’s cGMP regulations; and·submission to and approval by the FDA of an NDA.Before human clinical trials can begin on a new drug, the results of preclinical tests, together with manufacturing information andanalytical data, must be submitted to the FDA as part of an IND and the FDA must permit the IND to become effective. Eachclinical trial under an IND must be reviewed and approved by an independent Institutional18 Table of ContentsReview Board, or IRB. Human clinical trials are typically conducted in three sequential phases that may overlap. These phasesgenerally include:·Phase 1, during which the drug is introduced into healthy human subjects or, on occasion, patients and is tested forsafety, stability, dose tolerance and metabolism;·Phase 2, during which the drug is introduced into a limited patient population to determine the efficacy of theproduct in specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possibleadverse effects and safety risks; and·Phase 3, during which the clinical trial is expanded to a larger and more diverse patient group at geographicallydispersed clinical trial sites to further evaluate the drug and ultimately to demonstrate effectiveness.The IND sponsor, the FDA or the IRB may suspend a clinical trial at any time for various reasons, including failure to followappropriate ethical trial protocols, failure to provide adequate protections for trial participants or a belief that the subjects arebeing exposed to an unacceptable health risk.The results of preclinical animal studies and human clinical studies, together with other detailed (e.g., information relating topharmaceutical formulation, stability, manufacturing, processing, packaging, labeling, quality control) are submitted to the FDAin the NDA.The Section 505(b)(2) NDAFor modifications to products previously approved by the FDA, an applicant may file an NDA under Section 505(b)(2) of theFFDCA. This section permits the filing of an NDA where some or all of the data required for approval comes from studies notconducted by or for the applicant and for which the applicant has not obtained a right of reference. Under this section, anapplicant may rely on the approval of another NDA or on studies published in the scientific literature. The applicant may berequired to conduct additional studies or provide additional information to fully demonstrate the safety and effectiveness of itsmodification to the approved product.Where a Section 505(b)(2) applicant relies on the FDA’s approval of another NDA, the applicant is required to submit the sametypes of patent certifications as are required for an ANDA. As in the case of an ANDA, a Paragraph IV certification challengingone or more of the patents listed for the reference drug will require notice to the patent owner(s) and NDA holder and will permita patent infringement suit that may result in a 30-month stay in the approval of the Section 505(b)(2) NDA. The approval of aSection 505(b)(2) NDA may also be delayed by the NCE, three-year, orphan drug, pediatric and new antibiotic exclusivities thatare applicable to ANDAs as discussed above.The Biosimilar Application Approval ProcessThe BPCIA, passed by Congress in 2010, amended the PHSA to create an abbreviated approval pathway for follow-on biologics.This approval pathway is available for “biosimilar” products, which are products that are highly similar to biologics that havebeen approved in BLAs under the PHSA notwithstanding minor differences in clinically inactive components. A biosimilarapplication must contain information demonstrating (1) biosimilarity to the reference product, (2) sameness of strength, dosageform, route of administration and mechanism(s) of action with the reference product (where known), (3) approval of the referenceproduct for the indication(s) proposed for the biosimilar product and (4) appropriate manufacturing facilities. FDA will approvethe application based on a finding of biosimilarity or interchangeability with the reference product. A finding of biosimilaritymust be based on (1) a demonstration that the products are “highly similar” notwithstanding minor differences in clinicallyinactive components, (2) animal studies, including an assessment of toxicity, and (3) a clinical study or studies (including anassessment of immunogenicity and pharmacokinetics or pharmacodynamics) sufficient to show the safety, purity and potency ofthe proposed product for one or more “appropriate” conditions of use for which licensure is sought and for which the referenceproduct is licensed, unless FDA waives a specific requirement. The definition of “biosimilar” requires that there be no clinicallymeaningful differences between the biosimilar and reference product with regard to safety, purity and potency.19 Table of ContentsAn applicant with a pending or approved biosimilar application may seek an FDA determination that its product isinterchangeable with the reference drug. In addition to demonstrating biosimilarity to the reference product, the biosimilarapplicant must demonstrate that its product can be expected to yield the same clinical result as the reference product in any givenpatient. If the biosimilar product may be administered more than once to a patient, the applicant must demonstrate that the risk interms of safety or diminished efficacy of alternating or switching between the biosimilar and reference products is not greaterthan the risk of continued administration of the reference product. The PHSA provides that a determination of interchangeabilitymeans that the biosimilar product may be substituted for the reference product without the intervention of the health care providerwho prescribed the reference product. The first biosimilar determined to be interchangeable with a particular reference product forany condition of use is protected by an exclusivity that delays an FDA determination of interchangeability with regard to anyother biosimilar application. The exclusivity delays the subsequent interchangeability determination until the earlier of: (1) oneyear after the first commercial marketing of the first interchangeable product; (2) 18 months after resolution of a patentinfringement suit based on a final court decision regarding all of the patents in the litigation or dismissal of the litigation with orwithout prejudice; (3) 42 months after approval of the first interchangeable biosimilar biological product, if an expedited patentaction was commenced against the applicant under section 351(l)(6) and the litigation is still pending; or (4) 18 months afterapproval of the first interchangeable product if the reference product sponsor did not sue the biosimilar applicant for infringementunder the patent resolution provisions of the PHSA.The PHSA provides a number of exclusivity protections for reference products that may delay submission and approval ofbiosimilar applications. The PHSA delays submission of a biosimilar application until four years after the date on which thereference product was first licensed and delays final approval of a biosimilar application until twelve years after the first licensureof the reference product. The first-licensure requirement precludes an additional period of exclusivity for a supplement to theoriginal application for the reference product. It also precludes exclusivity for an entirely new BLA in certain circumstances. Anew BLA submitted by a sponsor or manufacturer of a previously approved biologic would not be protected by exclusivity for(1) a non-structural change that results in a new indication, route of administration, dosing schedule, dosage form, deliverysystem, delivery device or strength or (2) a structural change that does not result in a change in safety, purity or potency. As in thecase of NDAs approved under the FFDCA, BLAs may be entitled to orphan exclusivity and to pediatric exclusivity.The BPCIA amended the definition of biological product to include proteins (other than synthetic polypeptides). Applications forbiological products, including proteins, must now be approved under the PHSA rather than under the FFDCA. The BPCIAprovides a grandfather exception for biologics falling within a product class for which FDA has approved an application under theFFDCA. Applications for approval of these types of proteins may be submitted under the FFDCA until March 23, 2020 , unlessthere is a biological product licensed under the PHSA that could serve as a reference product for a biosimilar application.Under the PHSA, patents are not listed in the Orange Book and companies submitting biosimilar applications are not required tosubmit patent certifications. Patent disputes are resolved outside of the FDA regulatory process. The biosimilar applicant mustshare the contents of its biosimilar application and information on its manufacturing processes with counsel for the companyholding the BLA for the reference drug. The biosimilar applicant and BLA holder must exchange information about relevantpatents and seek agreement on patents to be litigated under an expedited litigation procedure.The BLA Approval ProcessThe BLA approval process is similar to the “Full NDA” approval process and generally involves:·completion of preclinical laboratory and animal testing in compliance with the FDA’s GLP regulations;·submission to the FDA of an IND for human clinical testing, which must satisfy FDA and become effective beforehuman clinical trials may begin;·performance of adequate and well-controlled human clinical trials to establish the efficacy of the proposed drugproduct for each intended use;20 Table of Contents·satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product isproduced to assess compliance with the FDA’s cGMP regulations; and·submission to and approval by the FDA of a BLA.·A combination product is a product comprising of two or more regulated components (e.g., a drug and device) thatare combined into a single product, co-packaged, or sold separately but intended for co-administration, as evidencedby the labeling for the products. A drug that is administered using an inhaler is an example of a combinationdrug/device product.·T he FDA is divided into various Centers, which each have authority over a specific type of product. NDAs arereviewed by personnel within the Center for Drug Evaluation and Research, or CDER, while device applicationsand premarket notifications are reviewed by the Center for Devices and Radiological Health, or CDRH. Whenreviewing a drug/device combination product, the FDA must assign a lead Center to review the product, based onthe combination product's primary mode of action, or PMOA, which is the single mode of a combination productthat provides the most important therapeutic action of the combination product. The Center that regulates thatportion of the product that generates the PMOA becomes the lead evaluator. If there are two independent modes ofaction, neither of which is subordinate to the other, the FDA makes a determination as to which Center to assign theproduct based on consistency with other combination products raising similar types of safety and effectivenessquestions or to the Center with the most expertise in evaluating the most significant safety and effectivenessquestions raised by the combination product.·W hen evaluating an application, a lead Center may consult other Centers and apply the standards that would beapplicable but still retain complete reviewing authority, or it may collaborate with another Center, by which theCenter assigns review of a specific section of the application to another Center, delegating its review authority forthat section. Typically, the FDA requires a single marketing application submitted to the Center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one Center. Onereason to submit multiple applications is if the applicant wishes to receive some benefit that accrues only fromapproval under a particular type of application, like new drug product exclusivity. If multiple applications aresubmitted, each may be evaluated by a different lead Center.·O ur inhalers, which deliver a specific drug, are regulated by t he FDA as combination product. We believe thecombination product will be regulated by the FDA as a drug (and not a device) because the primary mode of actionof the comb ination will be a drug action. As such, we will need to submit a marketing application to the CD ER forour inhalers that deliver a specific drug. CDRH will provide input to CDER on the device aspects of thecombination.  We can provide no assurance that any of our combination products will be approved by FDA in atimely fashion, if at all. ·L ike their constituent products—e.g., drugs and devices—combination products are highly regulated and subject toa broad range of post marketing requirements including cGMPs, adverse event reporting, periodic reports, labelingand advertising and promotion requirements and restrictions, market withdrawal and recall.FDA Action on an Application for ApprovalIf applicable statutory or regulatory requirements are not satisfied, the FDA may deny approval of an NDA, ANDA, BLA, orbiosimilar application, or the FDA may require additional data or information. After approval of the application, the FDA maysuspend or withdraw the approval based on various criteria, including new information related to safety or effectiveness or failureto comply with post-approval requirements. In addition, the FDA may in some instances require post-marketing studies onapproved products and may take actions to limit marketing of the product based on the results of those studies.21 Table of ContentsThe new drug and biological product approval processes may take years, and the time may vary substantially based upon the typeof application and the type, complexity and novelty of the product or disease. Government regulation may delay or preventmarketing of potential products for a considerable period of time and impose costly procedures upon a manufacturer’s activities.Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities arenot always conclusive and may be subject to varying interpretations that could delay, limit or prevent regulatory approval. Even ifa product receives regulatory approval, later discovery of previously unknown problems with a product may result in restrictionson the product or complete withdrawal of the product from the market.Manufacturing (cGMP) RequirementsWe and our contract manufacturers and other suppliers are required to comply with applicable FDA manufacturing requirementscontained in the FDA’s cGMP regulations. These cGMP regulations require among other things, quality control and qualityassurance as well as the corresponding maintenance of records and documentation. The manufacturing facilities for our productsmust meet cGMP requirements to the satisfaction of the FDA before FDA will approve our products and we must continue tomeet these requirements after our products are approved. We and our third-party manufacturers and other suppliers are subject toperiodic inspections of facilities by the FDA and other authorities to assess our compliance with applicable regulations.Other Regulatory RequirementsMaintaining substantial compliance with appropriate federal, state and local statutes and regulations requires the expenditure ofsubstantial time and financial resources. Drug manufacturers are required to register their establishments with the FDA andcertain state agencies. After approval, the FDA and these state agencies conduct periodic unannounced inspections to ensurecontinued compliance with ongoing regulatory requirements.In addition, after approval, some types of changes to the approved product, such as adding new indications, manufacturingchanges and additional labeling claims, are subject to further FDA review and approval. The FDA may require post-approvaltesting and surveillance programs to monitor safety and effectiveness of approved products that have been commercialized. Anydrug products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including:·record-keeping requirements;·reporting of adverse experiences with the drug;·providing the FDA with updated safety and efficacy information;·reporting on advertisements and promotional labeling;·drug sampling and distribution requirements; and·complying with electronic record and signature requirements.In addition, the FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placedon the market. There are numerous regulations and policies that govern various means for disseminating information to health-care professionals, as well as consumers, including industry sponsored scientific and educational activities, information providedto the media and information provided over the Internet. Drugs may be promoted only for the approved indications and inaccordance with the provisions of the approved label.22 Table of ContentsFDA Enforcement AuthorityThe FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result inadministrative or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products,including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions (which may in somecircumstances involve restitution, disgorgement or profits, recalls and/or total or partial suspension of production or distribution),seizure of products, withdrawal of approvals, refusal to approve pending applications and criminal prosecution of the companyand company officials that may result in fines and incarceration. FDA has authority to inspect manufacturing facilities as well asother facilities in which drug products are held, packaged or stored, to determine compliance with cGMP and other requirementsunder the FDCA. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-labeluses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. In addition,even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result inrestrictions on the product or even complete withdrawal of the product from the market.We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the useand disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above,the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delayissuance of approvals, seize or recall products and withdraw approvals, any one or more of which could have a materially adverseeffect on us.From January 19 through January 22, 2015, our facility in Éragny-Sur-Epte, France was subject to an inspection by the FrenchNational Agency for Medicines and Health Products Safety (Agence nationale de sécurité du médicament et des produits desanté), or ANSM. The inspection included a review of current EU Good Manufacturing Practices, or EU-GMP for MedicinalProducts for Human and Veterinary Use (EU-GMP Part II for Active Substances) and Manufacture of Biological ActiveSubstances and Medicinal Products for Human Use (EU-GMP Annex 2). The inspections resulted in various observations issuedformally to the facility. We responded to those observations on March 13, 2015, with a minor follow up response on April 3,2015. We received acknowledgment from ANSM that our responses to the observations were satisfactorily addressed and wasissued a certificate of EU-GMP compliance from the Agency dated April 9, 2015, that is valid until January 2018. From July 22, 2015 through August 10, 2015, our IMS facility in South El Monte, CA was subject to an inspection by the FDA.The inspection included a review of our compliance with cGMP regulations and preapproval inspections for abbreviated new drugapplications currently being reviewed by the FDA. The inspections resulted in multiple observations on Form 483. We respondedto those observations on August 31, 2015.   We believe that our responses to the Form 483 will satisfy the FDA and that nosignificant further actions will be necessary. From February 29, 2016 through March 4, 2016, our facility in Éragny-sur-Epte, France was subject to an inspection by the FDA.The inspection included a review of Quality Systems, Production Controls, Laboratory Controls, Material Management, andFacilities and Equipment Maintenance. The inspection resulted in multiple observations on Form 483. We plan to respond tothose observations by March 25, 2016. Foreign Regulatory Requirements Outside the U.S., our ability to market a product is contingent upon receiving marketing authorization from the appropriateregulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from countryto country. At present, foreign marketing authorizations are applied for at a national level, although within the European Unionregistration procedures are available to companies wishing to market a product in more than one European Union member state.The regulatory authority generally will grant marketing authorization if it is satisfied that we have presented it with adequateevidence of safety, quality and efficacy.23 Table of Contents Prescription Drug Wrap-Up When Congress passed the FFDCA in 1938, it required that “new drugs” be approved based on their safety. In 1962, Congressamended the FFDCA to require that sponsors demonstrate that new drugs are effective, as well as safe, in order to receive FDAapproval. We refer to these provisions as the “1962 Amendments.” The 1962 Amendments also required the FDA to conduct aretrospective evaluation of the efficacy of the drug products that the FDA approved between 1938 and 1962 on the basis of safetyalone. The FDA contracted with the National Academy of Science/National Research Council, or the NAS/NRC, to make aninitial evaluation of the efficacy of many of these drug products. The FDA’s administrative implementation of the NAS/NRCreports was called the Drug Efficacy Study Implementation, or the DESI.Drugs that were not subject to applications approved between 1938 and 1962 were not subject to DESI review. For a period oftime, the FDA did not challenge the marketing of these drugs without approval. In 1984, however, spurred by serious adversereactions to one of these products and concerns expressed by Congress, FDA undertook an assessment of the products under aninitiative known as the “Prescription Drug Wrap-Up.” Most of these drugs contain active ingredients that were first marketedprior to the enactment of the FFDCA. Several of our marketed pharmaceutical products fall within this category.The FDA has asserted that all drugs subject to the Prescription Drug Wrap-Up are on the market illegally unless they fall withintwo “grandfather” exceptions to the new drug definition. The first is a provision in the new drug definition exempting drugs thatwere on the market prior to the passage of the FFDCA and that contain the same representations concerning the conditions of useas they did prior to passage of the FFDCA. The 1962 Amendments also exempt drugs that were not new drugs prior to thepassage of the 1962 Amendments and that have the same composition and labeling as they had prior to the passage of the 1962Amendments. The FDA and the courts have interpreted these two exceptions very narrowly. Therefore, the FDA could commenceenforcement action at any time regarding any or all of our unapproved prescription products.The FDA has adopted a risk-based enforcement policy that prioritizes enforcement of new drug requirements for these and otherunapproved drugs that pose safety concerns, lack evidence of efficacy, prevent patients from pursuing effective therapies, aremarketed fraudulently, violate other provisions of the FFDCA, such as cGMP requirements, or directly compete with approveddrugs. The FDA has indicated that approval of an NDA for one drug within a class of drugs marketed without FDA approval maytrigger agency enforcement of the new drug requirements. Once the FDA issues an approved NDA for one of the drug products atissue or completes the efficacy review for that drug product, it may require other manufacturers to also obtain approval for thatsame drug in order to continue marketing it in the U.S. While the FDA generally provides sponsors a one-year grace period, theagency is not statutorily required to do so.Fraud and Abuse LawsBecause of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and activelyenforce, a number of laws to eliminate fraud and abuse in federal health care programs. Our business is subject to compliancewith these laws.Federal False Claims ActAnother development affecting the health care industry is the increased use of the federal False Claims Act, and in particular,action s brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act imposesliability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulentclaim for payment by a federal health care program. The qui tam provisions of the False Claims Act allow a private individual tobring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federalgovernment and to share in any monetary recovery. In recent years, the number of suits brought against health care providers byprivate individuals has increased dramatically. In addition, various states have enacted false claims law s analogous to the FalseClaims Act, and many of these state laws apply where a claim is submitted to any third-party payer and not merely a federal orother governmental health care program.24 Table of ContentsWhen an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actualdamages sustained by the government, plus civil penalties of between $5,500 and $11,000 for each separate instance of a   falseclaim. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entityknowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The federalgovernment has used the False Claims Act to assert liability on the basis of inadequate care, kickbacks and other improperreferrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more predictableallegations of misrepresentations with respect to the services rendered. In addition, the federal government has prosecutedcompanies under the False Claims Act in connection with off-label promotion of products. Our current and future activitiesrelating to the reporting of wholesale or estimated retail prices of our products, the reporting of discount and rebate informationand other information affecting federal, state and third-party reimbursement of our products , and the sale and marketing of ourproducts may be subject to scrutiny under these laws. While we are unaware of any current matters, we are unable to predictwhether we will be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However,the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.The Sunshine ActThe Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the Affordable Care Act, requires allpharmaceutical manufacturers that participate in Medicare, Medicaid or the Children’s Health Insurance Program to reportannually to the Secretary of the Department of Health and Human Services payments or other transfers of value made by thatentity, or by a third party as directed by that entity, to physicians and teaching hospitals or to third parties on behalf of physiciansor teaching hospitals. The payments required to be reported include the cost of meals provided to a physician, travelreimbursements and other transfers of value provided as part of contracted services , including speaker programs, advisoryboards, consultation services and clinical trial services. The statute requires the federal government to make reported informationavailable to the public. Failure to comply with the reporting requirements can result in significant civil monetary penalties rangingfrom $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per annual report of$150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum per annual report of $1.0 million).Additionally, there are criminal penalties if an entity intentionally makes false statements in such reports. We are subject to theSunshine Act and the information we disclose may lead to greater scrutiny, which may result in modifications to establishedpractices and additional costs. Additionally, similar reporting requirements have also been enacted on the state level domestically,and an increasing number of countries worldwide either have adopted or are considering adopting similar laws requiringtransparency of interactions with health care professionals.Environmental ConsiderationsWe are subject to federal, state and local environmental laws and regulations, both U.S. and foreign , including those promulgatedby the Occupational Safety and Health Administration, the Environmental Protection Agency, the Department of Health andHuman Services and the Air Quality Management District, which govern activities and operations that may have adverseenvironmental effects such as discharges to air, soil and water, as well as handling and disposal practices for solid and hazardouswastes. Because we own and operate real property, t hese laws impose strict liability for the costs of cleaning up, and for damagesresulting from, sites of past spills, disposals or other releases of hazardous substances and materials . These laws and regulationsmay also require us to pay for the investigation and remediation of environmental contamination at properties operated by us andat off-site locations where we have arranged for the disposal of hazardous substances. If it is determined that our operations orfacilities are not in compliance with current environmental laws, we could be subject to fines and penalties, the amount of whichcould be material.The costs of complying with various applicable environmental requirements, as they now exist or as may be altered in the future,could adversely affect our financial condition and results of operations. For example, as a result of environmental concerns aboutthe use of CFCs, the FDA issued a final rule on January 16, 2009 that required the phase-out of the CFC version of our PrimateneMist product by December 31, 2011. This phase out caused us to halt sales of the CFC version of our Primatene Mist productsubsequent to December 31, 2011 and write off our inventory for the product, which had an adverse effect on our financialresults.25 ® ® Table of ContentsWe have made and will continue to make expenditures to comply with current and future U.S. and foreign environmental lawsand regulations . We anticipate that we will incur additional capital and operating costs in the future to comply with existingenvironmental laws and new requirements arising from new or amended statutes and regulations. We cannot accurately predictthe impact and costs that future regulations will impose on our business.Other RegulationsWe also must comply with data protection and data privacy requirements. Compliance with these laws, rules and regulationsregarding privacy, security and protection of employee data could result in higher compliance and technology costs for us, as wellas significant fines, penalties and damage to our global reputation and our brand as a result of non-compliance.Intellectual PropertyOur success depends on our ability to operate without infringing the patents and proprietary rights of third parties. However, wecannot determine with certainty whether patents or patent applications of other parties will have a materially adverse effect on ourability to make, use, or sell any products. A number of pharmaceutical companies, biotechnology companies, universities andresearch institutions may have filed patent applications or may have been granted patents that cover aspects of our, or ourlicensors’ products, product candidates, or other technologies.We primarily rely on trade secrets, unpatented proprietary know-how and continuing technological innovation to protect ourproducts and technologies, especially where we do not believe patent protection is appropriate or obtainable. Although in somecases we seek patent protection to preserve our competitive position, our current patent portfolio does not cover the majority ofour existing products and product candidates. We own several U.S. and foreign patents covering processes and equipment used inthe manufacture of a few of our products. The expiration dates of these patents range from 2020 to 202 8 .W e own a U .S. patent covering Primatene HFA: U .S. Patent Number 8,367,734, or the “‘734 patent,” which was issued onFebruary 5, 2013, and expires in January 2026. W e have several patent applications that are currently pending. The majority ofour significant products or product candidates are not covered by any U .S. or foreign patents related to formulations orcompositions. Indeed, many of our products and product candidates are generic products, and therefore may not be eligible forpatent protection. For example, our enoxaparin product is a generic product, and as such, it is not covered by any U .S. or foreignpatents. Other of our products, including Amphadase , are based on compounds for which any applicable patents have expired,or which were not patented by Amphastar in the first instance because they are older compounds. As for the remainder of ourproduct candidates that are not intended to be generic products , we may seek to obtain patent rights or rely on trade secretprotection (but , in any case, the majority of our products and product candidates are not currently covered by any U .S. or foreignpatents).We may not be able to obtain patent or other forms of protection for inventions or other intellectual property developed by ourofficers, employees, or consultants because we might not have been the first to file or to invent the patentable technology orothers may have independently developed similar or alternative technology. We also own several trademarks registered with theUSPTO and one trademark registered with the Canadian Intellectual Property Office.Despite our efforts to protect our proprietary information through the use of confidentiality and non-disclosure agreements,unauthorized parties may copy aspects of our products or obtain and use information that we regard as proprietary. Other partiesmay also independently develop know-how or obtain unauthorized access to our technologies.Intellectual property protection is highly uncertain and involves complex legal and factual questions. Our patents and those forwhich we have or will license rights may be challenged, invalidated, infringed or circumvented, and the rights granted in thosepatents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to developpatentable products. Even if a patent application is filed, some or all of the patent claims may not be allowed, the patent itself maynot issue, or in the event of issuance, the issued claims may not be sufficient to protect the technology owned by or licensed to us.26 ® ® Table of ContentsThird-party patent applications and patents could reduce the coverage of the patents licensed, or that may be licensed to, or ownedby us. If patents containing competitive or conflicting claims are issued to third parties, we may be enjoined from thecommercialization of products or be required to obtain licenses to these patents or to develop or obtain alternative technology. Inaddition, other parties may duplicate, design around or independently develop similar or alternative technologies to ours or thoseof our licensors.Litigation may be necessary to enforce patents issued or licensed to us or to determine the scope or validity of another party’sproprietary rights. USPTO interference proceedings may be necessary if we and another party both claim to have invented thesame subject matter. Even if we ultimately prevail, we could incur substantial costs and our management’s attention would bediverted if:·litigation is required to defend against patent suits brought by third parties;·we participate in patent suits brought against or initiated by our licensors;·we initiate suits against third parties who are infringing on our patents; or·we participate in an interference or other similar USPTO proceeding.However, even if we pursue litigation or other action to protect our intellectual property rights, we may not prevail in any of theseactions or proceedings.EmployeesAs of December 31, 2015, we had a total of 1,460 full-time employees.Corporate InformationWe incorporated in California under the name Amphastar Pharmaceuticals, Inc. in 1996 and merged our California corporationinto Amphastar Pharmaceuticals, Inc., a newly formed Delaware corporation, in 2004. Our corporate offices are located at 115706   S treet, Rancho Cucamonga, CA 91730. Our telephone number is (909) 980-9484 .   Our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonablypracticable after we electronically file them with, or furnish them to, the SEC. You can access our filings with the SEC by visitingwww.amphastar.com . The information that is contained on, or can be accessed through our website is not incorporated into thisAnnual Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only.W e use our website as a channel of distribution for important company information. Important information, including pressreleases, analyst presentations and financial information regarding us, as well as corporate governance information, is routinelyposted and accessible on the “Investor s ” section of the website, which is accessible by clicking on the tab labeled “Investors” onour website home page.   Information on or that can be accessed through our website is not part of this Annual Report on Form10- K , and the inclusion of our website address is an inactive textual reference only.Item 1A. Risk Factors.Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties describedbelow, together with all of the other information contained in this Annual Report on Form 10-K , including our consolidatedfinancial statements and the related notes thereto. Our future operating results may vary substantially from anticipated resultsdue to a number of risks and uncertainties, many of which are beyond our control. The risks and uncertainties described beloware not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are notmaterial, may also become important factors that affect us. The following discussion highlights some of these risks anduncertainties and the possible impact of these risks on future results of operations. If any of the following risks occur, ourbusiness, financial condition or results of operations could be materially and adversely affected. In that case, the market value ofour common stock could decline substantially and you could lose27 th Table of Contentspart or all of your investment.Risks Relating to Our Business and IndustryOur enoxaparin product represents a significant portion of our net revenues. If the sales volume or pricing of this productcontinues to decline, or if we are unable to satisfy market demand for this product, it could have a material adverse effect onour business, financial position and results of operations.Sales from our enoxaparin product, which is our largest selling product, represented 34%, 51%, and 64% of our total net revenuesfor the years ended December 31, 2015, 2014, and 2013, respectively. We are currently experiencing declining revenue fromenoxaparin and some of our other existing products and we may operate at a loss in the near term while continuing to invest indeveloping new products. If the sales volume or pricing of enoxaparin continues to decline, or if we are unable to satisfy marketdemand for this product, our business, financial position and results of operations could be materially and adversely affected, andthe market value of our common stock could decline. For example, due to intense pricing competition in the pharmaceuticalindustry, we have experienced significant declines in the per unit pricing and gross margins attributable to our enoxaparin productsince its commercial launch. Our enoxaparin product could be rendered obsolete or negatively impacted by numerous factors,many of which are beyond our control, including:·decreasing average sales prices;·development by others of new pharmaceutical products that are more effective than ours;·entrance of new competitors into our markets;·loss of key relationships with suppliers, group purchasing organizations or end-user customers;·manufacturing or supply interruptions;·changes in the prescribing practices of physicians;·changes in third-party reimbursement practices;·product liability claims; and·product recalls or safety alerts.Any factor adversely affecting the sale of enoxaparin may cause our revenues to decline, and we may not be able to achieve andmaintain profitability.We incurred losses for fiscal 2014 and fiscal 2015 and we may   operate at a loss in the near term while continuing to invest indeveloping new products.We recorded a net loss of $10.7 million for the year ended December 31, 2014, and a net loss of $ 2.8 million for the year endedDecember 31, 2015. These losses resulted principally from a decrease in profits from enoxaparin. We may continue to incuroperating and net losses and negative cash flow from operations. Our business may generate operating losses if we do notsuccessfully commercialize our product candidates, maintain sales of and profits from existing products, and generate sufficientrevenues to support our level of operating expenses, especially as we continue our investment in developing new products.Because of the numerous risks and uncertainties associated with our commercialization efforts and future product development,we are unable to predict whether we will be able to achieve and maintain profitability.Our success depends on our ability to develop and/or acquire and commercialize additional pharmaceutical products.Our financial results depend upon our ability to commercialize additional generic and proprietary pharmaceutical products thataddress unmet medical needs, are accepted by patients and physicians and are reimbursed by payers.28 Table of ContentsCommercialization requires that we successfully and cost-effectively develop, test and manufacture or otherwise acquire bothgeneric and proprietary products. All of our products must receive regulatory approval and meet (and continue to comply with)regulatory and safety standards. If health or safety concerns arise with respect to a product, we may be forced to withdraw it fromthe market. For example, as a result of environmental concerns over the use of chlorofluorocarbons, or CFCs, the U.S. Food andDrug Administration, or FDA, issued a final rule on January 16, 2009 , that required the phase-out of the CFC formulation of ourPrimatene Mist product by December 31, 2011. As a result, in order to resume selling Primatene we have developed aformulation of the product that will use hydrofluoroalkane, or HFA, as the propellant , and we are attempting to seek FDAapproval for the modified product. There can be no guarantee that our investment in research and development activities willresult in FDA approval or produce a commercially viable new product. See the risk factor entitled “The FDA approval process istime-consuming and complicated, and we may not obtain the FDA approval required for a product within the timeline we desire,or at all. Additionally, we may lose FDA approval and/or our products may become subject to foreign regulations.”The development and commercialization process, particularly with respect to our proprietary products, is time-consuming, costlyand involves a high degree of business risk. Our products currently under development, if and when fully developed and tested,may not perform as we expect. Necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may notbe able to produce and market such products successfully and profitably. For example, we filed an abbreviated new drugapplication, or ANDA, for our enoxaparin product in March 2003, but FDA approval was not granted until September 2011 dueto delays caused largely by our inclusion in lengthy litigation with Sanofi S.A., or Sanofi, the FDA’s requirement that we performimmunogenicity studies and the receipt of an FDA Warning Letter by the supplier of the starting material for our enoxaparinproduct, who also became the subject of an FDA Import Alert. Following FDA approval, we became involved in litigation withMomenta Pharmaceuticals, Inc. and Sandoz, Inc., which further delayed the commercial launch of our enoxaparin product untilJanuary 2012. Delays in any part of the process, or our inability to obtain regulatory approval of our products, could adverselyaffect our operating results by restricting or delaying our introduction of new products, which could cause the market value of ourproducts to decline. To the extent that we expend significant resources on research and development efforts and are not able,ultimately, to introduce successful new products as a result of those efforts, our business, financial position and results ofoperations may be materially and adversely affected, and the market value of our common stock could decline.Our ability to introduce new generic products also depends upon our success in challenging patent rights held by third parties orin developing non-infringing products. Due to the emergence and development of competing products over time, our overallprofitability depends on, among other things, our ability to introduce new products in a timely manner, to continue to manufactureproducts cost-effectively and to manage the life cycle of our product portfolio. If we are unable to cost-effectively maintain anadequate flow of successful generic and proprietary products and new indications and/or delivery methods for existing productssufficient to cover our substantial research and development costs and the decline in sales of older products that either becomesubject to generic competition, or are displaced by competing products or therapies, this could have a material adverse effect onour business, financial condition or results of operations.Our success depends on the integrity of our supply chain, including multiple single source suppliers, the disruption of whichcould negatively impact our business.Some of our products are the result of complex manufacturing processes, and some require highly specialized raw materials.Because our business requires outsourcing in some instances, we are subject to inherent uncertainties related to product safety,availability and security. For some of our key raw materials, components and active pharmaceutical ingredient, or API, used incertain of our products, we have only a single, external source of supply, and alternate sources of supply may not be readilyavailable. For example, we purchase heparin USP as the starting material for producing our enoxaparin product exclusively froma single source supplier and, in 2009, this supplier received a Warning Letter from the FDA and was the subject of an FDAImport Alert. The resulting shortage of heparin USP resulted in significant delays to the FDA approval process for our enoxaparinproduct. There are no guarantees our supplier will not receive Warning Letters in the future or that we will be able to replace thissingle source supplier with an alternate supplier on a commercially reasonable and timely basis, or at all, to prevent a shortage ofheparin USP. Additionally, in 2013 our single source supplier of epinephrine API for our Primatene HFA product candidatereceived a w arning l etter from the FDA, which our supplier has since addressed. In the future, it is possible that our supplierswill receive w arning l etters from the FDA and be unsuccessful in their efforts to address the issues raised in such w arning letters on a timely basis, or29 ® ® ® Table of Contentsat all, which would result in delays in commercialization and/or manufacturing of our products or product candidates, if FDAapproval for such products or product candidates is received. Furthermore, we may be unable to replace such supplier with analternate supplier on a commercially reasonable and timely basis, or at all.If we fail to maintain relationships with our current suppliers, we may not be able to complete development, commercialization ormarketing of our products, which would have a material and adverse effect on our business. Third-party suppliers may notperform as agreed or may terminate their agreements with us. For example, because these third parties provide materials to anumber of other pharmaceutical companies, they may experience capacity constraints or choose to prioritize one or more of theirother customers over us. Any significant problem that our suppliers experience could delay or interrupt our supply of materialsuntil the supplier cures the problem or until we locate, negotiate for, validate and receive FDA approval for an alternative sourceof supply, if one is available. In the near term, we do not anticipate that the FDA will approve alternative sources to back up ourprimary suppliers. Therefore, if our primary suppliers become unable or unwilling to manufacture or deliver materials, we couldexperience protracted delays or interruptions in the supply of materials. This would ultimately delay our manufacture of productsfor commercial sale, which could materially and adversely affect our development programs, commercial activities, operatingresults and financial condition.Additionally, any failure by us to forecast demand for, or to maintain an adequate supply of, the raw material and finished productcould result in an interruption in the supply of certain products and a decline in sales of that product.Underutilization of our manufacturing capacity could negatively impact our gross margins.We have invested significantly in our manufacturing capacity in order to vertically integrate our business, contain the costs of rawmaterials and reduce the risks imposed by relying on third-party single source suppliers. We currently own and operate facilitiesthat manufacture raw materials and APIs for our products and product candidates and those of our customers and partners,including insulin API for MannKind. However, if market demand decreases or if market supply surpasses demand, whetherbecause of macroeconomic factors, pharmaceutical industry volatility, or deficiencies specific to our customers, we may not beable to reduce manufacturing expenses or overhead costs proportionately. For example, a significant portion of our manufacturingcapacity in our facility in Éragny-sur-Epte, France is utilized for the manufacture of insulin API for MannKind, and a significantportion of our manufacturing capacity in Rancho Cucamonga is utilized for the manufacture of enoxaparin. If an increase insupply outpaces the increase in market demand, or if demand decreases, the resulting oversupply could adversely impact our salesand result in the underutilization of our manufacturing capacity, high inventory levels, changes in revenue mix and rapid priceerosion, which would lower our margins and adversely impact our financial results.We face significant competition in the pharmaceutical industry with respect to both our proprietary and generic drugs, whichmay result in others developing or commercializing products before or more successfully than we do, which could significantlylimit our growth and materially and adversely affect our financial results.Our business operates in the pharmaceutical industry, which is an industry characterized by intense competition. Many of ourcompetitors have longer operating histories and greater financial, research and development, marketing and other resources thanwe do. Consequently, many of our competitors may be able to develop products and/or processes competitive with, or superior to,our own. For example, a competitor has received FDA approval for their intranasal naloxone product in the markets for which weare currently seeking labeling approval. We are concentrating the majority of our efforts and resources on developing productcandidates utilizing our proprietary technologies. The commercial success of products utilizing such technologies will depend, inlarge part, on the intensity of competition, labeling claims approved by the FDA for our products compared to claims approvedfor competitive products and the relative timing and sequence for commercial launch of new products by other companies thatcompete with our new products. If alternative technologies or other therapeutic approaches are adopted prior to our new productapprovals, then the market for our new products may be substantially decreased, thus reducing our ability to generate futureprofits.This intensely competitive environment requires an ongoing, extensive search for technological innovations and the ability tomarket products effectively, including the ability to communicate the effectiveness, safety and value of our products to healthcareprofessionals in private practice, group practices and managed care organizations. Our competitors vary depending upon productcategories, and within each product category, upon dosage strengths and upon drug-30 Table of Contentsdelivery systems. Based on total assets, annual revenues and market capitalization, we are smaller than many of our national andinternational competitors with respect to both our generic and proprietary pharmaceutical products and product candidates. Manyof our competitors have been in business for a longer period of time than us, have a greater number of products on the market andhave greater financial and other resources than we do. Furthermore, recent trends in this industry are toward further marketconsolidation of large drug companies into a smaller number of very large entities, further concentrating financial, technical andmarket strength and increasing competitive pressure in the industry. For example, the acquisition of Allergan’s generic business,Actavis, by Teva Pharmaceutical Industries Ltd., will result in our simultaneous competition with Teva’s generic enoxaparinproduct and ongoing profit sharing arrangement with Allergan under which Actavis markets and distributes our enoxaparinproduct to the retail market in the U.S. If we directly compete with them for the same markets and/or products, their financialstrength could prevent us from capturing a profitable share of those markets. Smaller companies may also prove to be significantcompetitors, particularly through collaborative arrangements with large and established companies. It is possible thatdevelopments by our competitors will make our products or technologies noncompetitive or obsolete.If we fail to obtain exclusive marketing rights for our generic pharmaceutical products or fail to introduce these genericproducts on a timely basis, our revenues, gross margin and operating results may decline significantly.The Hatch-Waxman amendments to the Federal Food, Drug, and Cosmetic Act, or FFDCA, provide for a period of 180 days ofgeneric marketing exclusivity for any applicant that is first-to-file an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a patent listed with respect to the corresponding brand drug, which we refer to as aParagraph IV certification. The holder of an approved ANDA containing a Paragraph IV certification that is successful inchallenging the applicable brand drug patent(s) is often able to price the applicable generic drug to yield relatively high grossmargins during this 180-day marketing exclusivity period. ANDAs that contain Paragraph IV certifications challenging patents,however, generally become the subject of patent litigation that can be both lengthy and costly. There is no certainty that we willprevail in any such litigation, that we will be the first-to-file and granted the 180-day marketing exclusivity period or, if we aregranted the 180-day marketing exclusivity period, that we will not forfeit such period. Even where we are awarded marketingexclusivity, we may be required to share our exclusivity period with other ANDA applicants who submit Paragraph IVcertifications. In addition, brand companies often authorize a generic version of the corresponding brand drug to be sold duringany period of marketing exclusivity that is awarded, which reduces gross margins during the marketing exclusivity period. Brandcompanies may also reduce the price of their brand product to compete directly with generics entering the market, which similarlywould have the effect of reducing gross margins. Furthermore, timely commencement of litigation by the patent owner imposesan automatic stay of ANDA approval by the FDA for 30 months, unless the case is decided in the ANDA applicant’s favor duringthat period. Finally, if the court’s decision is adverse to the ANDA applicant, the ANDA approval will be delayed until thechallenged patent expires, and the applicant will not be granted the 180-day marketing exclusivity.Accordingly, our revenues and future profitability are dependent, in large part, upon our ability or the ability of our developmentpartners to file ANDAs with the FDA timely and effectively or to enter into contractual relationships with other parties that haveobtained marketing exclusivity. We may not be able to develop and introduce successful products in the future within the timeconstraints necessary to be successful. If we or our development partners are unable to continue to timely and effectively fileANDAs with the FDA or to partner with other parties that have obtained marketing exclusivity, our revenues, gross margin andoperating results may decline significantly, and our prospects and business may be materially adversely affected.Our generic products face , and our generic product candidates will face , additional competitive pressures that are specific tothe generic pharmaceutical industry.With respect to our generic pharmaceutical business, revenues and gross profit derived from the sales of generic pharmaceuticalproducts tend to follow a pattern based on certain regulatory and competitive factors. As patents and exclusivities protecting abrand name product expire, the first manufacturer to receive regulatory approval for a generic version of the product is generallyable to achieve significant market penetration. Therefore, our ability to increase or maintain revenues and profitability in ourgenerics business is largely dependent on our success in challenging patents and developing non-infringing formulations ofproprietary products. As competing manufacturers receive regulatory approvals on generic products or as brand manufacturerslaunch generic versions of their products (for which no separate regulatory approval is required), market share, revenues andgross profit typically decline, often significantly and31 Table of Contentsrapidly. Accordingly, the level of market share, revenue and gross profit attributable to a particular generic product normally isrelated to the number of competitors in that product’s market and the timing of that product’s regulatory approval and launch, inrelation to competing approvals and launches. For example, enoxaparin is currently marketed by Sanofi, under the brand nameLovenox . Sanofi also markets its authorized generic enoxparin product through its subsidiary, Winthrop, and also throughFresenius Kabi USA. Sandoz and Teva Pharmaceuticals Industries Ltd., also market a generic version of enoxaparin . Othercompanies may have filed an ANDA with the FDA for approval of enoxaparin . The presence of these current and prospectivecompetitive products has had, and may continue to have , an adverse effect on our market share, revenue and gross profit fromour enoxaparin product. Since the commercial launch of our enoxaparin product, we have experienced significant declines insales volume, per unit pricing and gross margins attributable to this product. Consequently, we must continue to develop andintroduce new generic products in a timely and cost-effective manner to maintain our revenues and gross margins. We may havefewer opportunities to launch significant generic products in the future, as the number and size of proprietary products that aresubject to patent challenges is expected to decrease in the next several years compared to historical levels. Additionally, as newcompetitors enter the market, there may be increased pricing pressure on certain products, which may result in lower grossmargins. In addition to our enoxaparin product, we have experienced significant pricing pressure on many of our other products,including Cortrosyn , and we expect this trend to continue in the future.Competition in the generic drug industry has also increased due to the proliferation of authorized generic pharmaceuticalproducts. “Authorized generics” are generic pharmaceutical products that are introduced by brand companies, either directly orthrough partnering arrangements with other generic companies. Authorized generics are equivalent to the brand companies’ brandname drugs, but are sold at relatively lower prices than the brand name drugs. An authorized generic product can be marketedduring the 180-day exclusivity granted to the first manufacturer or manufacturers to submit an ANDA with a Paragraph IVcertification for a generic version of the brand product. The sale of authorized generics adversely impacts the market share of ageneric product that has been granted 180-day exclusivity. For example, with respect to our enoxaparin product, Sanofi currentlymarkets an authorized generic enoxaparin product through its subsidiary, Winthrop. This is a significant source of competition forus because brand companies do not face any regulatory barriers to introducing authorized generics of their products. Becauseauthorized generics may be sold during our exclusivity periods, if any, they can materially decrease the profits that we couldotherwise receive as an exclusive marketer of a generic alternative. Such actions have the effect of reducing the potential marketshare and profitability of our generic products and may inhibit us from developing and introducing generic pharmaceuticalproducts corresponding to certain brand name drugs.Such competition can also result from the entry of generic versions of another product in the same therapeutic class as one of ourdrugs, or in another competing therapeutic class, or from the compulsory licensing of our products by governments, or from ageneral weakening of intellectual property laws in certain countries around the world.If the market for a reference brand product, such as Lovenox , significantly declines, sales or potential sales of our genericand biosimilar products and product candidates may suffer and our business would be materially impacted.Proprietary products face competition on numerous fronts as technological advances are made or new products are introduced. Asnew products are approved that compete with the reference proprietary product to our generic products and generic or biosimilarproduct candidates, such as Lovenox , which is the reference brand product for our enoxaparin product, sales of the referencebrand products may be significantly and adversely impacted and may render the reference brand product obsolete. In addition,brand companies may pursue life cycle management strategies that also impact our generic products.If the market for a reference brand product is impacted, we in turn may lose significant market share or market potential for ourgeneric or biosimilar products and product candidates, and the value for our generic or biosimilar pipeline could be negativelyimpacted. As a result, our business, including our financial results and our ability to fund future discovery and developmentprograms, would suffer.Health care providers may not be receptive to our products, particularly those that incorporate our proprietary drug deliveryplatforms.The commercial success of our products will depend on acceptance by health care providers and others that such32 ® ® ® ® Table of Contentsproducts are clinically effective, affordable and safe. Our products utilizing our proprietary drug delivery technologies may not beaccepted by health care providers and others. Factors that may materially affect market acceptance of our products include but arenot limited to:·the relative therapeutic advantages and disadvantages of our products compared to competitive products;·the relative timing of commercial launch of our products compared to competitive products;·the relative safety and efficacy of our products compared to competitive products;·the product labeling approved by the FDA for our products and for competing products;·the willingness of third party payers to reimburse for our prescription products;·the willingness of pharmacy chains to stock our new products; and·the willingness of consumers to pay for our products.Our products, if successfully developed and commercially launched, will compete with both currently marketed products and newproducts launched in the future by other companies. Health care providers may not accept or utilize some of our products.Physicians and other prescribers may not be inclined to prescribe our prescription products unless our products demonstratecommercially viable advantages over other products currently marketed for the same indications. Pharmacy chains may not bewilling to stock certain of our new products, and pharmacists may not recommend such products to consumers. Further,consumers may not be willing to purchase some of our products. If our products do not achieve market acceptance, we may not beable to generate significant revenues or become profitable.If we are unable to maintain our group purchasing organization relationships, our revenues could decline and futureprofitability could be jeopardized.Many of the existing and potential customers for our products have combined to form group purchasing organizations in an effortto lower costs. Group purchasing organizations negotiate pricing arrangements with medical supply manufacturers anddistributors, and these negotiated prices are made available to a group purchasing organization’s affiliated hospitals and othermembers. Group purchasing organizations provide end-users access to a broad range of pharmaceutical products from multiplesuppliers at competitive prices and, in certain cases, exercise considerable influence over the drug purchasing decisions of suchend-users. Hospitals and other end-users contract with the group purchasing organization of their choice for their purchasingneeds. We currently derive, and expect to continue to derive, our revenue from end-user customers that are members of grouppurchasing organizations. Maintaining our strong relationships with these group purchasing organizations will require us tocontinue to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and providehigh-quality products. Although our group purchasing organization pricing agreements are typically multi-year in duration, mostof them may be terminated by either party with 60 or 90 days ’   notice. The grou p purchasing organizations with which we haverelationships may have relationships with manufacturers that sell competing products, and such group purchasing organizationsmay earn higher margins from these competing products or combinations of competing products or may prefer products otherthan ours for other reasons. If we are unable to maintain our group purchasing organization relationships, sales of our productsand revenue could decline.Consolidation in the health care industry could lead to demands for price concessions or for the exclusion of some suppliersfrom certain of our markets, which could have an adverse effect on our business, financial condition or results of operations.Because health care costs have risen significantly, numerous initiatives and reforms by legislatures, regulators and third-partypayers to curb these cost increases have resulted in a trend in the health care industry to consolidate product suppliers andpurchasers. As the health care industry consolidates, competition among suppliers to provide products to purchasers has becomemore intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certainsuppliers from important market segments as group purchasing organizations and33 Table of Contentslarge single accounts continue to use their market power to influence product pricing and purchasing decisions. As the U.S. payermarket concentrates further and as more drugs become available in generic form, biopharmaceutical companies may face greaterpricing pressure from private third-party payers, who will continue to drive more of their patients to use lower cost genericalternatives. This drive towards generic alternatives could adversely affect sales of our proprietary products and increasecompetition among generic manufacturers.  Sales of our products may be adversely affected by the continuing consolidation of our customer base.A significant proportion of our sales are made to relatively few U.S. wholesalers and group purchasing organizations. Thesecustomers are continuing to undergo significant consolidation. Sales to three of these customers for the years ended December 31,2015, 2014, and 2013, respectively, accounted for approximately 5 6 %, 51%, and 54% of our total net revenues, respectively.Such consolidation has provided and may continue to provide them with additional purchasing leverage, and consequently mayincrease the pricing pressures that we face. Additionally, the emergence of large buying groups representing independent retailpharmacies, and the prevalence and influence of managed care organizations and similar institutions, enable those groups toextract price discounts on our products.Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or moreof our major customers experienced financial difficulties, the effect on us would be substantial. This could have a materialadverse effect on our business, financial condition and results of operations.Our net sales and quarterly growth comparisons may also be affected by fluctuations in the buying patterns of retail chains, majordistributors and other trade buyers, whether resulting from seasonality, pricing, wholesaler buying decisions or other factors. Inaddition, because a significant portion of our U.S. revenues is derived from relatively few customers, any financial difficultiesexperienced by a single customer, or any delay in receiving payments from a single customer, could have a material adverseeffect on our business, financial condition and results of operations.If our business partners do not fulfill their obligations with respect to our distribution or collaboration agreements ourrevenues and our business will suffer.Pursuant to certain distribution or collaboration agreements, the success of some of our products or product candidates alsodepends on the success of the collaboration with our business partners, who are responsible for certain aspects of researching,developing, marketing, distributing or commercializing our products or product candidates. If such an agreement were to beterminated in accordance with its terms, including due to a party’s failure to perform its obligations or responsibilities under theagreement, revenues could be delayed or diminished from these products and our revenues and/or profit share for these productscould be adversely impacted.For example, we have a profit sharing agreement with A llergan to market and distribute our enoxaparin product to the retailmarket in the U.S. If Allergan’s generic business, Actavis, (which is being acquired by Teva, who has their own genericenoxaparin product) fails to commit sufficient resources to market and distribute our products to the retail market, our profitsharing revenue from retail sales of enoxaparin could be severely impacted.The revenues we earn and report from our profit sharing agreement with A llergan are subject to their marketing, pricing andreporting practices.Under the terms of our profit sharing agreement, A llergan markets and distributes our enoxaparin product to the retail market inthe U.S., we share in the profits from these activities as reported to us by A llergan . Accordingly, the amounts of profit sharingrevenues we recognize each period are subject to A llergan marketing, pricing and reporting practices. To the extent A llerganreports varying or decreased profit levels on their determined sales volumes and product pricing, our profit sharing revenue fromretail sales of enoxaparin, financial position, results of operations and cash flows could be materially impacted.We depend upon our key personnel, the loss of whom could adversely affect our operations. If we fail to attract and retain thetalent required for our business, our business could be materially harmed.We depend to a significant degree on our key management employees, including our Chief Executive Officer and Chief ScienceOfficer, Jack Y. Zhang; Chief Operating Officer and Chief Scientist, Mary Z. Luo; President, Jason B. Shandell;34 Table of ContentsChief Financial Officer and Senior Vice President, William J. Peters ; Executive Vice President of Quality and RegulatoryAffairs, Diane G. Gerst; and Executive Vice President of Production, Rong Zhou . The loss of services from any of these personsmay significantly delay or prevent the achievement of our product development or business objectives. Our officers all serve “atwill” and we or they can terminate their employment with us at any time. We do not carry key man life insurance on any keypersonnel. Competition among pharmaceutical companies for qualified employees is intense, and the ability to attract and retainqualified individuals is critical to our success. We have experienced attrition among our executive officers in the past, althoughwe do not believe that the departures of executive officers have had a materially adverse effect on our business. However, anyfuture loss of key members of our organization, or any inability to continue to attract high-quality employees, may delay orprevent the achievement of major business objectives. Our productivity may be adversely affected if we do not integrate or trainour new employees quickly and effectively.Competition for highly-skilled personnel is often intense, especially in Southern California, where we have a substantial presenceand need for highly-skilled personnel. We may not be successful in attracting, integrating or retaining qualified personnel to fulfillour current or future needs. Also, to the extent we hire personnel from competitors, we may be subject to allegations that we haveimproperly solicited, or that they have divulged proprietary or other confidential information, or that their former employers owntheir inventions or work product.Because a portion of our manufacturing take s place in China, a significant disruption in the construction or operation of ourmanufacturing facility in China or political unrest in China could materially and adversely affect our business, financialcondition and results of operations.We currently manufacture the starting material for Amphadase at our manufacturing facility in China, and we intend to continueto invest in the expansion of this manufacturing facility. Any disruption in construction of the facility or the inability of ourmanufacturing facility in China to produce adequate quantities of raw materials or APIs to meet our needs, whether as a result ofa natural disaster or other causes, could impair our ability to operate our business. Furthermore, since this facility is located inChina, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies ofthe Chinese government, political unrest or unstable economic conditions in China. The nationalization or other expropriation ofprivate enterprises by the Chinese government could result in the total loss of our investment in China. Any of these matters couldmaterially and adversely affect our business and results of operations. These interruptions or failures could also impedecommercialization of our product candidates and impair our competitive position.We are exposed to risks related to our international operations and failure to manage these risks may adversely affect ouroperating results and financial condition.We have operations both inside and outside the U.S. For example, we have suppliers in Asia and Europe, and we ownmanufacturing facilities in Nanjing, China and Éragny-sur-Epte, France. As a result, a significant portion of our operations areconducted by and/or rely on entities outside the markets in which our products are sold, and, accordingly, we import a substantialnumber of products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability toship products from any of our sites as a result of a closing of the borders of the countries in which we sell our products, or inwhich our operations are located, due to economic, legislative, political and military conditions in such countries.International operations are subject to a number of other inherent risks, and our future results could be adversely affectedby a number of factors, including:·requirements or preferences for domestic products or solutions, which could reduce demand for our products;·differing existing or future regulatory and certification requirements;·management communication and integration problems resulting from cultural and geographic dispersion;·greater difficulty in collecting accounts receivable and longer collection periods;35 ® Table of Contents·difficulties in enforcing contracts;·difficulties and costs of staffing and managing non-U.S. operations;·the uncertainty of protection for intellectual property rights in some countries;·tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell ourproducts;·greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including export andantitrust regulations, the U.S. Foreign Corrupt Practices Act and any trade regulations ensuring fair trade practices;·uneven electricity supply that can negatively impact manufacturing;·heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent salesarrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;·potentially adverse tax consequences, including multiple and possibly overlapping tax structures; and·political and economic instability, political unrest and terrorism.In addition, the expansion of our existing international operations, including our facility expansion in Nanjing, China, and entryinto additional international markets, including our acquisition of a manufacturing business in Éragny-sur-Epte, France, haverequired and will continue to require significant management attention and financial resources. These and other factors couldharm our ability to gain future revenues and, consequently, materially impact our business, operations results and financialcondition.The Chinese government may exert substantial influence over the manner in which we conduct our business operations inChina.The Chinese government has exercised, and continues to exercise, substantial control over virtually every sector of the Chineseeconomy through regulation and state ownership. Our ability to conduct our proposed manufacturing operations in China may beharmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmentalregulations, land use rights, property ownership and other matters. We believe that our operations in China are in materialcompliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictionsin which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additionalexpenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, governmentactions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrallyplanned economy or regional or local variations in the implementation of economic policies, could have a significant effect oneconomic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold inChinese properties or entities, including our Chinese operating subsidiary, Amphastar Nanjing Pharmaceuticals Co., Ltd., orANP.The Chinese legal system can be uncertain and could limit the legal protections available to us.Unlike common law systems, such as the United States, the Chinese legal system is based on written statutes and decided legalcases have little precedential value. Our Chinese operating subsidiary, ANP, is subject to laws and regulations applicable toforeign investment in China in general and laws and regulations applicable to foreign invested enterprises in particular. ANP isalso subject to laws and regulations governing the formation and conduct of domestic Chinese companies. Relevant Chinese laws,regulations and legal requirements may change frequently, and their interpretation and enforcement involve uncertainties. Forexample, we may have to resort to administrative and court proceedings to enforce the legal protections under law or contract.However, since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutoryand contract terms, it may be more difficult to evaluate36 Table of Contentsthe outcome of administrative and court proceedings and our level of legal protection in China compared to other legal systems.Such uncertainties, including the inability to enforce our contracts and intellectual property rights, could materially and adverselyaffect our business and operations. In addition, confidentiality protections in China may not be as effective as in the U.S. or othercountries. Accordingly, future developments in the Chinese legal system, including the promulgation of new laws, changes toexisting laws or the interpretation or enforcement thereof, or the preemption of local requirements by national laws, could limitthe legal protections available to us.We could be materially and adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwideanti-bribery laws.The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and theirintermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Ourpolicies mandate compliance with these anti-bribery laws, which often carry substantial penalties. We are currently expanding ouroperation abroad, including expanding our facilities in China, a country which has experienced governmental and private sectorcorruption to some degree, and in certain circumstances, strict compliance with anti-bribery laws may conflict with certain localcustoms and practices. Our internal control policies and procedures may not always protect us from reckless or otherinappropriate acts committed by our affiliates, employees or agents. Violations of these laws, or allegations of such violations,could have a material adverse effect on our business, financial position and results of operations and could cause the market valueof our common stock to decline.Movements in foreign currency exchange rates could have a material adverse effect on our business, financial position andresults of operations and could cause the market value of our common stock to decline.A portion of our revenues, indebtedness and other liabilities and our costs are denominated in foreign currencies, including theChinese Yuan and the Euro. We report our financial results in U.S. dollars. Our results of operations and, in some cases, cashflows may in the future be adversely affected by certain movements in exchange rates. From time to time, we may implementcurrency hedges intended to reduce our exposure to changes in foreign currency exchange rates. However, any such hedgingstrategies may not be successful, and any of our unhedged foreign exchange exposures will continue to be subject to marketfluctuations. These risks could cause a material adverse effect on our business, financial position and results of operations andcould cause the market value of our common stock to decline.We may be exposed to product liability claims and may not be able to obtain or maintain adequate product liability insurance.Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale ofpharmaceutical products. Product liability claims might be made by patients, health care providers or others who sell or consumeour products. These claims may be made even with respect to those products that possess regulatory approval for commercialsale.Our reputation is the foundation of our relationships with physicians, patients, group purchasing organizations and othercustomers. If we are unable to effectively manage real or perceived issues that could negatively impact sentiments toward us, ourbusiness could suffer. Our customers may have a number of concerns about the safety of our products whether or not suchconcerns have a basis in generally accepted science or peer-reviewed scientific research. These concerns may be increased bynegative publicity, even if the publicity is inaccurate. Any negative publicity, whether accurate or inaccurate, about the efficacy,safety or side effects of our products or product categories, whether involving us, a competitor or a reference drug, couldmaterially reduce market acceptance of our products, cause consumers to seek alternatives to our products, result in productwithdrawals and cause our stock price to decline. Negative publicity could also result in an increased number of product liabilityclaims, whether or not these claims have a basis in scientific fact.We currently maintain a   $10.0 million product liability insurance policy, which covers Amphastar, International MedicationSystems, Ltd., or IMS, and Amphastar France Pharmaceuticals S.A.S., or AFP products, but our insurance coverage may notreimburse us or may not be sufficient to reimburse us for all expenses or losses we may suffer from any product liability claims.Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurancecoverage at a reasonable cost or in sufficient amounts to protect us against losses. Large judgments have been awarded in classaction lawsuits based on drug products that had unanticipated side effects.37 Table of ContentsA successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgmentsexceed our insurance coverage, could decrease our cash and adversely affect our business.If serious adverse events or deaths are identified relating to any of our products once they are on the market, we may berequired to withdraw our products from the market, which would hinder or preclude our ability to generate revenues.We are required to report to relevant regulatory authorities adverse events or deaths associated with our product candidates orapproved products. Based on such events, regulatory authorities may withdraw their approvals of such products or takeenforcement actions. We may be required to reformulate our products, and/or we may have to recall the affected products fromthe market and may not be able to reintroduce them into the market. Furthermore, our reputation in the marketplace may sufferand we may become the target of lawsuits, including class actions suits. Any of these events could harm or prevent sales of theaffected products and could have a material adverse effect upon our business and financial condition.Any acquisitions of technologies, products and businesses may be difficult to integrate, could adversely affect our relationshipswith key customers and/or could result in significant charges to earnings.We plan to regularly review potential acquisitions of technologies, products and businesses complementary to our business.Acquisitions typically entail many risks and could result in difficulties in integrating operations, personnel, technologies andproducts. If we are not able to successfully integrate our acquisitions, we may not obtain the advantages and synergies that theacquisitions were intended to create, which may have a material adverse effect on our business, results of operations, financialcondition and cash flows, our ability to develop and introduce new products and the market price of our stock. In addition, inconnection with acquisitions, we could experience disruption in our business, technology and information systems, customer oremployee base, including diversion of management’s attention from our continuing operations. There is also a risk that keyemployees of companies that we acquire or key employees necessary to successfully commercialize technologies and productsthat we acquire may seek employment elsewhere, including with our competitors. Furthermore, there may be overlap between ourproducts or customers and the companies that we acquire that may create conflicts in relationships or other commitmentsdetrimental to the integrated businesses. If we are unable to successfully integrate technologies, products, businesses or personnelthat we acquire, we could incur significant impairment charges or other adverse financial consequences.Identifying, executing and realizing attractive returns on acquisitions is highly competitive and involves a high degree ofuncertainty. We expect to encounter competition for potential target businesses from both strategic and financial buyers. Some ofthese competitors may be well established and have extensive experience in identifying and consummating businesscombinations. Some of these competitors may possess greater technical, human and other resources than us, and our financialresources may be relatively limited when contrasted with those of our competitors. We may lose acquisition opportunities if wedo not match our competitors’ pricing, terms and structure criteria for such acquisitions. If we are forced to match these criteria tomake acquisitions, we may not be able to achieve acceptable returns on our acquisitions or may bear substantial risk of capitalloss. In addition, target companies may not be willing to sell assets at valuations which are attractive to us. Furthermore, the termsof our existing or future indebtedness may hinder or prevent us from making additional acquisitions of technologies, products orbusinesses. Because of these factors, we may not be able to consummate an acquisition on attractive terms, if at all.We intend to conduct an extensive due diligence investigation for any business we consider acquiring. Intensive due diligence isoften time consuming and expensive due to the operations, finance and legal professionals who may be involved in the duediligence process. Even if we conduct extensive due diligence on a target business which we acquire, we may not identify allmaterial issues that are present inside a particular target business. If our due diligence fails to discover or identify material issuesrelating to a target business, industry or the environment in which the target business operates, we may be forced to later write-down or write-off assets, restructure the target business’s operations or incur impairment or other charges that could result inlosses to us.38 Table of ContentsCharges to earnings resulting from acquisitions could have a material adverse effect on our business, financial position andresults of operations and could cause the market value of our common stock to decline.Under U.S. generally accepted accounting principles, or GAAP, business combination accounting standards, we recognize theidentifiable assets acquired, the liabilities assumed and any non-controlling interests in acquired companies generally at theiracquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as theexcess amount of consideration transferred, which is also generally measured at fair value, and the net of the acquisition dateamounts of the identifiable assets acquired and the liabilities assumed. Our estimates of fair value are based upon assumptionsbelieved to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could resultin material charges and adversely affect our operating results and may adversely affect our cash flows:·costs incurred to combine the operations of companies we acquire, such as transitional employee expenses andemployee retention, redeployment or relocation expenses;·impairment of goodwill or intangible assets, including acquired in-process research and development;·amortization of intangible assets acquired;·a reduction in the useful lives of intangible assets acquired;·identification of or changes to assumed contingent liabilities, including, but not limited to, contingent purchase priceconsideration, income tax contingencies and other non-income tax contingencies, after our final determination of theamounts for these contingencies or the conclusion of the measurement period (generally up to one year from theacquisition date), whichever comes first;·charges to our operating results to eliminate certain duplicative pre-acquisition activities, to restructure ouroperations or to reduce our cost structure;·charges to our operating results resulting from expenses incurred to effect the acquisition; and·changes to contingent consideration liabilities, including accretion and fair value adjustments.A significant portion of these adjustments could be accounted for as expenses that will decrease our net income and earnings pershare for the periods in which those costs are incurred. Such charges could cause a material adverse effect on our business,financial position and results of operations and could cause the market value of the common stock to decline.The Affordable Care Act and certain legislation and regulatory proposals may increase our costs of compliance and negativelyimpact our profitability over time.In March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Careand Education Affordability Reconciliation Act, which we refer to collectively as the Affordable Care Act. The Affordable CareAct makes extensive changes to the delivery of health care in the U.S. We expect that the rebates, discounts, taxes and other costsresulting from the Affordable Care Act over time will have a negative effect on our expenses and profitability in the future.Furthermore, the Independent Payment Advisory Board created by the Affordable Care Act to reduce the per capita rate of growthin Medicare spending could potentially limit access to certain treatments or mandate price controls for our products. Moreover,expanded government investigative authority and increased disclosure obligations may increase the cost of compliance with newregulations and programs.In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example,on August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the JointSelect Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. As a result of the failure ofthe Joint Select Committee to propose, and of Congress to enact, deficit reduction measures of at least $1.2 trillion for the years2013 through 2021, the Budget Control Act provides for automatic cuts to be made to most federal government programs, which,with respect to Medicare, would include aggregate reductions to Medicare39 Table of Contentspayments to providers of up to 2% per fiscal year, starting in 2013. Pursuant to the American Taxpayer Relief Act of 2012, whichwas enacted by Congress on January 1, 2013, the imposition of these automatic cuts began April 1, 2013. In addition, the newlaw, among other things, reduces Medicare inpatient payment amounts to hospitals and increases the statute of limitations forrecovering overpayments from three years to five years. The full impact on our business of this new law, assuming it isimplemented, is uncertain. Nor is it clear whether other legislative changes will be adopted or how such changes would affect thedemand for our products.In addition, there have been a number of other legislative and regulatory proposals aimed at changing the pharmaceuticalindustry. For example, in November 2013, Congress passed the Drug Quality and Security Act, or the DQSA. The DQSAestablishes federal pedigree tracking standards requiring drugs to be labeled and tracked at the lot level, preempts state drugpedigree requirements, and will eventually require all supply-chain stakeholders to participate in an electronic, interoperableprescription drug track and trace system. The DQSA also establishes new requirements for drug wholesale distributors and thirdparty logistics providers, including licensing requirements in states that had not previously licensed such entities. As a result ofthese and other new proposals, we may determine to change our current manner of operation, provide additional benefits orchange our contract arrangements, any of which could have a material adverse effect on our business, financial condition andresults of operations.President Barack Obama also signed into law the Food and Drug Administration Safety and Innovation Act. The new law andrelated agreements make several significant changes to the FFDCA and FDA’s processes for reviewing marketing applicationsthat could have a significant impact on the pharmaceutical industry, including, among other things, the following:·reauthorizes the Prescription Drug User Fee Act, which increases the amount of associated user fees, and, for certaintypes of applications, increases the expected time frame for FDA review of new drug applications, or NDAs;·permanently reauthorizes and makes some revisions to the Best Pharmaceuticals for Children Act and the PediatricResearch Equity Act, which provide for pediatric exclusivity and mandated pediatric assessments for certain typesof applications, respectively;·revises certain standards and requirements for FDA inspections of manufacturing facilities and the importation ofdrug products from foreign countries;·creates incentives for the development of certain antibiotic drug products;·modifies the standards for accelerated approval of certain new medical treatments;·expands the reporting requirements for potential and actual drug shortages;·requires the FDA to issue a report on, among other things, ensuring the safety of prescription drugs that have thepotential for abuse;·requires the FDA to hold a public meeting regarding the potential rescheduling of drug products containinghydrocodone, which was held in October 2012; and·requires electronic submission of certain marketing applications following the issuance of final FDA regulations.The full impact on our business of the new laws is uncertain; however, we anticipate that it will have an adverse effect on ourresults of operations.Additionally, we encounter similar regulatory and legislative issues in most other countries. In the European Union, or EU, andsome other international markets, the government provides health care at low cost to consumers and regulates pharmaceuticalprices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Thisinternational system of price regulations may lead to inconsistent prices.40 Table of ContentsIf significant additional reforms are made to the U.S. health care system, or to the health care systems of other markets in whichwe operate, those reforms could have a material adverse effect on our business, financial position and results of operations andcould cause the market value of our common stock to decline.Global macroeconomic conditions may negatively affect us and may magnify certain risks that affect our business.Our business is sensitive to general economic conditions, both inside and outside the U.S. Slower global economic growth, creditmarket crises, high levels of unemployment, reduced levels of capital expenditures, government deficit reduction, sequestrationand other austerity measures and other challenges affecting the global economy adversely affect us and our distributors,customers and suppliers. It is uncertain how long these effects will last, or whether economic and financial trends will worsen orimprove. Such uncertain economic times may have a material adverse effect on our revenues, results of operations, financialcondition and, if circumstances worsen, our ability to raise capital at reasonable rates. If slower growth in the global economy orin any of the markets we serve continues for a significant period, if there is significant deterioration in the global economy or suchmarkets or if improvements in the global economy don’t benefit the markets we serve, our business and financial statements couldbe adversely affected.Additionally, as a result of the current or a future global economic downturn, our third-party payers may delay or be unable tosatisfy their reimbursement obligations. Sales of our principal products are dependent, in part, on the availability and extent ofreimbursement from third-party payers, including government programs such as Medicare and Medicaid and private payerhealthcare and insurance programs. A reduction in the availability or extent of reimbursement from government and/or privatepayer healthcare programs could have a material adverse effect on the sales of our products, our business and results ofoperations.Current economic conditions may adversely affect the ability of our distributors, customers, suppliers and service providers toobtain the liquidity required to pay for our products, or otherwise to buy necessary inventory or raw materials, and to performtheir obligations under agreements with us, which could disrupt our operations, and could negatively impact our business andcash flow. Although we make efforts to monitor these third parties’ financial condition and their liquidity, our ability to do so islimited, and some of them may become unable to pay their bills in a timely manner, or may even become insolvent, which couldnegatively impact our business and results of operations. These risks may be elevated with respect to our interactions with thirdparties with substantial operations in countries where current economic conditions are the most severe, particularly where suchthird parties are themselves exposed to sovereign risk from business interactions directly with fiscally-challenged governmentpayers.At the same time, significant changes and volatility in the financial markets, in the consumer and business environment, in thecompetitive landscape and in the global political and security landscape make it increasingly difficult for us to predict ourrevenues and earnings into the future. As a result, any revenue or earnings guidance or outlook which we have given or mightgive may be overtaken by events, or may otherwise turn out to be inaccurate. Though we endeavor to give reasonable estimates offuture revenues and earnings at the time we give such guidance, based on then-current conditions, there is a significant risk thatsuch guidance or outlook will turn out to be, or to have been, incorrect.We identified a material weakness in our internal control over financial reporting as of December 31, 2015 that, if notproperly remediated, could result in a material misstatement in our financial statements in future periods and impair ourability to comply with the accounting and reporting requirements applicable to public companies.Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting .  However ,   for the year ended December 31, 2015, we identified a material weakness in our internal control over financialreporting in the area of non-standard and complex transactions. The accounting for certain non-standard and complex transactionswere not analyzed and/or reviewed in sufficient detail by knowledgeable personnel to reach the appropriate accounting conclusionto properly record the transaction. The number of errors identified and the commonality of the root cause of the adjustments(namely, inadequate resources to provide for a more thorough and precise review in these areas), leads us to conclude that there isa material weakness in internal controls.  Recognizing this material weakness and the resulting errors identified, managementperformed additional analyses and supplementary review procedures and has concluded that the effects of these errors were notmaterial to any prior year or prior quarters’ previously reported amounts. Despite the existence of this material weakness, webelieve the consolidated financial statements included in this Annual Report on Form 10-K present, in all material respects, ourfinancial position, results41 Table of Contentsof operations, comprehensive loss and cash flows for the periods presented in conformity with U.S. generally accepted accountingprinciples.Our remediation efforts are in process and have not yet been completed. Because of this material weakness, there is heightenedrisk that a material misstatement of our annual or quarterly financial statements may not be prevented or detected. In addition, theplanned remediation steps we expect to take may not effectively remediate the material weakness, in which case our internalcontrol over financial reporting would continue to be ineffective. We cannot guarantee that we will be able to complete ourremedial actions successfully. Even if we are able to complete these actions successfully, these measures may not adequatelyaddress our material weakness. In addition, it is possible that we will discover additional material weaknesses in our internalcontrol over financial reporting.If we are unable to adequately remediate the foregoing material weakness or comply or continue to comply with the foregoingobligations, it could subject us to a variety of administrative sanctions, including becoming subject to investigation or sanctionsby the Securities and Exchange Commission, or SEC, the suspension or delisting of our common stock from the NASDAQGlobal Select Market and the inability of registered broker-dealers to make a market in our common stock, which could reducethe market price of our common stock. In addition, in the event that we do not adequately remediate this material weakness, or ifwe fail to maintain proper and effective internal controls in future periods, our business, results of operations and financialcondition and our ability to run our business effectively could be adversely affected and investors could lose confidence in ourfinancial reporting. Significant balances of intangible assets, including goodwill, are subject to impairment testing and may result in impairmentcharges, which may materially and adversely affect our results of operations and financial condition.A significant amount of our total assets is related to goodwill and intangible assets. As of December 31, 2015, the value of ourgoodwill and intangible assets net of accumulated amortization was $39.9 million. Goodwill and other intangible assets are testedfor impairment annually when events occur or circumstances change that could potentially reduce the fair value of the reportingunit or intangible asset. Impairment testing compares the fair value of the reporting unit or intangible asset to its carrying amount.Any future goodwill or other intangible asset impairment, if any, would be recorded in operating income and could have amaterial adverse effect on our results of operations and financial condition.Our outstanding loan agreements contain restrictive covenants that may limit our operating flexibility.Our loan agreements are collateralized by substantially all of our presently existing and subsequently acquired personal propertyassets, and subject us to certain affirmative and negative covenants, including limitations on our ability to transfer or dispose ofassets, merge with or acquire other companies, make investments, pay dividends, incur additional indebtedness and liens andconduct transactions with affiliates. We are also subject to certain covenants that require us to maintain certain financial ratios andare required under certain conditions to make mandatory prepayments of outstanding principal. As a result of these covenants andratios, we have certain limitations on the manner in which we can conduct our business, and we may be restricted from engagingin favorable business activities or financing future operations or capital needs until our current debt obligations are paid in full orwe obtain the consent of our lenders, which we may not be able to obtain. We may not be able to generate sufficient cash flow orrevenue to meet the financial covenants or pay the principal and interest on our debt , and in the past we have not been incompliance with certain financial covenants . In addition, upon the occurrence of an event of default, our lenders, among otherthings, can declare all indebtedness due and payable immediately, which would adversely impact our liquidity and reduce theavailability of our cash flows to fund working capital needs, capital expenditures and other general corporate purposes. An eventof default includes our failure to pay any amount due and payable under the loan agreements, the occurrence of a material adversechange in our business as defined in the loan agreements, our breach of any covenant in the loan agreements, subject to a graceperiod in some cases, or an involuntary insolvency proceeding. Additionally, a lender could exercise its lien on substantially all ofour assets and our future working capital, borrowings or equity financing may not be available to repay or refinance any suchdebt.42 Table of ContentsAs a public company, we are obligated to develop and maintain adequate internal controls and be able, on an annual basis, toprovide an assertion as to the effectiveness of such controls. Failure to maintain adequate internal controls or to implementnew or improved controls could have a material adverse effect on our business, financial position and results of operationsand could cause the market value of our common stock to decline.Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produceaccurate financial statements on a timely basis is a costly and time-consuming effort. Our internal control over financial reportingis designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements in accordance with GAAP. We may not be able to complete our evaluation, testing and any required remediation in atimely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal controlover financial reporting, we will be unable to assert that our internal controls are effective. For the year ended December 31,2015, we identified a material weakness in our internal control over financial reporting , for which remediation efforts are inprocess but have not yet been completed. We cannot be certain that any control remediation efforts undertaken during 2016 willenable us to avoid a material weakness in the future. Ensuring that we have adequate internal financial and accounting controlsand procedures in place to help produce accurate financial statements on a timely basis is a costly and time-consuming effort thatneeds to be evaluated frequently. See “Risk Factors – Risks Involving our Business or Industry – We identified a materialweakness in our internal control over financial reporting as of December 31, 2015 that, if not properly remediated, could result ina material misstatement in our financial statements in future periods and impair our ability to comply with the accounting andreporting requirements applicable to public companies.”We are required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independentregistered public accounting firm will not be required to report on the effectiveness of our internal control over financial reportingpursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company” as defined in the JOBSAct if we continue to take advantage of the exemptions contained in the JOBS Act. At such time, our independent registeredpublic accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls aredocumented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financialstatements in accordance with GAAP. Any future changes in estimates, judgments and assumptions used or necessaryrevisions to prior estimates, judgments or assumptions or changes in accounting standards could lead to a restatement orrevision to previously consolidated financial statements, which could have a material adverse effect on our business, financialposition and results of operations and could cause the market value of our common stock to decline.The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions thataffect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonable under the circumstances, as discussed in greaterdetail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the resultsof which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent fromother sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ fromthose in our assumptions, which could cause our operating results to fall below the expectations of securities analysts andinvestors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidatedfinancial statements include those related to revenue recognition, provision for wholesaler chargebacks, accruals for productreturns, valuation of inventory, impairment of intangibles and long-lived assets, accounting for income taxes and share-basedcompensation. Furthermore, although we have recorded reserves for litigation related contingencies based on estimates ofprobable future costs, such litigation related contingencies could result in substantial further costs. Also, any new or revisedaccounting standards may require adjustments to previously issued financial statements. Any such changes could result incorresponding changes to the amounts of liabilities, revenues, expenses and income. Any such changes could have a materialadverse effect on our business, financial position and results of operations and could cause the market value of our common stockto decline.Changes in financial accounting standards or practices can have a significant effect on our reported results and may even43 Table of Contentsaffect our reporting of transactions completed before the change is effective. New accounting pronouncements and varyinginterpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or thequestioning of current practices may adversely affect our business and financial results.Changes in income tax laws, tax rulings and other factors may have a significantly adverse impact on our effective tax rateand tax expense, which could have a material adverse effect on our business, financial position and results of operations andcould cause the market value of our common stock to decline.Potential changes to income tax laws in the U.S. include measures which would defer the deduction of interest expense related todeferred income; determine the foreign tax credit on a pooling basis; tax currently excess returns associated with transfers ofintangibles offshore; and limit earnings stripping by expatriated entities. In addition, proposals were made to encouragemanufacturing in the U.S., including reduced rates of tax and increased deductions related to manufacturing. We cannotdetermine whether these proposals will be modified or enacted, whether other proposals unknown at this time will be made or theextent to which the corporate tax rate might be reduced and ameliorate the adverse impact of some of these proposals. If enacted,and depending on its precise terms, such legislation could materially increase our overall effective income tax rate and income taxexpense. This could have a material adverse effect on our business, financial position and results of operations and could causethe market value of our common stock to decline.In addition to income taxes in the U.S. we are subject to income taxes in many foreign jurisdictions. Significant judgment isrequired in determining our worldwide provision for income taxes. In the ordinary course of business, there are many transactionsand calculations where the ultimate tax determination is uncertain. The final determination of any tax audits or related litigationcould be materially different from our historical income tax provisions and accruals.Additionally, increases in our effective tax rate as a result of a change in the mix of earnings in countries with differing statutorytax rates, changes in our overall profitability, changes in the valuation of deferred tax assets and liabilities, the results of auditsand the examination of previously filed tax returns by various taxing authorities and continuing assessments of our tax exposurescould impact our tax liabilities and affect our income tax expense, which could have a material adverse effect on our business,financial position and results of operations and could cause the market value of our common stock to decline.Counterfeit versions of our products could harm our patients and reputation.Our industry has been increasingly challenged by the vulnerability of distribution channels to illegal counterfeiting and thepresence of counterfeit products in a growing number of markets and over the Internet. Counterfeit products are frequently unsafeor ineffective, and can be potentially life-threatening. To distributors and patients, counterfeit products may be visuallyindistinguishable from the authentic version. Reports of adverse reactions to counterfeit drugs or increased levels ofcounterfeiting could materially affect patient confidence in the authentic product, and harm the business of companies such asours. Additionally, it is possible that adverse events caused by unsafe counterfeit products would mistakenly be attributed to theauthentic product. If a product of ours was the subject of counterfeits, we could incur substantial reputational and financial harmin the longer term.Our business and operations would suffer in the event of system failures.Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses,unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Any system failure, accidentor security breach that causes interruptions in our operations could result in a material disruption of our product developmentprograms. For example, the loss of clinical trial data from completed clinical trials could result in delays in our regulatoryapproval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or securitybreach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietaryinformation, we may incur liability and the further development of our product candidates may be delayed.In addition, we rely on complex information technology systems, including Internet-based systems, to support our supply chainprocesses as well as internal and external communications. The size and complexity of our systems make them44 Table of Contentspotentially vulnerable to breakdown or interruption, whether due to computer viruses or other causes that may result in the loss ofkey information or the impairment of production and other supply chain processes. Such disruptions and breaches of securitycould adversely affect our business.We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and ourbusiness continuity and disaster recovery plans may not adequately protect us from a serious disaster.The facilities we use for our headquarters, laboratory and research and development activities are located in earthquake-proneareas of California. A significant percentage of the facilities we use for our manufacturing, packaging, warehousing, distributionand administration offices are also located in these areas. Earthquakes or other natural disasters could severely disrupt ouroperations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a naturaldisaster, power outage or other event occurred that prevented us from using all or a significant portion of our facilities, thatdamaged critical infrastructure, such as our manufacturing facilities, or that otherwise disrupted operations, it may be difficult or,in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and businesscontinuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster orsimilar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuityplans.Risks Relating to Regulatory MattersThe FDA approval process is time-consuming and complicated, and we may not obtain the FDA approval required for aproduct within the timeline we desire, or at all. Additionally, we may lose FDA approval and/or our products may becomesubject to foreign regulations.The development, testing, manufacturing, marketing and sale of generic and proprietary pharmaceutical products and biologicalproducts are subject to extensive federal, state and local regulation in the U.S. and other countries. Satisfaction of all regulatoryrequirements, which typically takes years for drugs that have to be approved in ANDAs, NDAs, biological license applications, orBLAs, or biosimilar applications is dependent upon the type, complexity and novelty of the product candidate and requires theexpenditure of substantial resources for research (including qualification of suppliers and their supplied materials), development,in vitro and in vivo (including nonclinical and clinical trials) studies, manufacturing process development and commercial scaleup. Some of our products are drug-device combination products that are regulated as drug products by the FDA, with consultationfrom the FDA’s Center for Device and Radiological Health. These combination products will require the submission of drugapplications to the FDA. All of our products are subject to compliance with the FFDCA and/or the Public Health Service Act, orPHSA, and with the FDA’s implementing regulations. Failure to adhere to applicable statutory or regulatory requirements by usor our business partners would have a material adverse effect on our operations and financial condition. In addition, in the eventwe are successful in developing product candidates for distribution and sale in other countries, we would become subject toregulation in such countries. Such foreign regulations and product approval requirements are expected to be time consuming andexpensive as well.We may encounter delays or agency rejections during any stage of the regulatory review and approval process based upon avariety of factors, including without limitation the failure to provide clinical data demonstrating compliance with the FDA’srequirements for safety, efficacy and quality. Those requirements may become more stringent prior to submission of ourapplications for approval or during the review of our applications due to changes in the law or changes in FDA policy or theadoption of new regulations. After submission of an application, the FDA may refuse to file the application, deny approval of theapplication or require additional testing or data. The FDA can convene an Advisory Committee to assist the FDA in examiningspecific issues related to the application. In February 2014, the FDA held a joint meeting of its Nonprescription Drugs AdvisoryCommittee and its Pulmonary Allergy Drugs Advisory Committee, which we refer to as the Committee, to discuss the NDA forPrimatene HFA. The Committee voted 14 to 10 that the data in the NDA supported efficacy, but voted 17 to 7 that safety hadnot been established for the intended over-the-counter use. The Committee also voted 18 to 6 that the product did not have afavorable risk-benefit profile for the intended over-the-counter use, and individual Committee members providedrecommendations for resolving their concerns. Although the FDA is not required to follow the recommendations of its advisorycommittees, it usually does. On May 22, 2014, we received a CRL from the FDA, which requires additional non-clinicalinformation, label revisions and follow-up studies (label comprehension, behavioral /human factors and actual use) to assessconsumers’ ability to use45 ® Table of Contentsthe device correctly to support approval of the product in the over-the-counter setting. We met with the FDA in October 2014 todiscuss preliminary data results and to clarify the FDA requirements for further studies. We received further advice regarding ourongoing studies from the FDA in January 2016 and w e   are currently in the process of generating the remaining data required bythe CRL and plan to submit an NDA a mendment that we believe will address the FDA’s concerns. However, there can be noguarantee that any amendment to our NDA will result in timely approval of the product or approval at all.Under various user fee enactments, the FDA has committed to timelines for its review of NDAs, ANDAs, BLAs and biosimilarapplications. However, the FDA’s timelines described in its guidance on these statutes are flexible and subject to changes basedon workload and other potential review issues that may delay the FDA’s review of an application. Further, the terms of approvalof any applications may be more restrictive than our expectations and could affect the marketability of our products.The FDA also has the authority to revoke or suspend approvals of previously approved products for cause, to debar companiesand individuals from participating in the approval process for ANDAs, to request recalls of allegedly violative products, to seizeallegedly violative products, to obtain injunctions that may, among other things, close manufacturing plants that are not operatingin conformity with cGMP and stop shipments of potentially violative products and to prosecute companies and individuals forviolations of the FFDCA. In the event that the FDA takes any such action relating to our products or product candidates, suchactions would have a material adverse effect on our operations and financial condition.Clinical failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarilypredictive of future results and any product candidate we advance through clinical trials may not have favorable results inlater clinical trials or receive regulatory approval.Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results,and we may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, dataobtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorablyas we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does notensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstratethe efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those withgreater resources and experience than us, have suffered significant setbacks in Phase 3 clinical trials, even after seeing promisingresults in earlier clinical trials.In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in thedesign of a clinical trial may not become apparent until the clinical trial is well-advanced. Further, clinical trials of potentialproducts often reveal that it is not practical or feasible to continue development efforts. If any of our product candidates are foundto be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed.In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same productcandidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations,adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. Our clinicaltrials may not demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our productcandidates. If we are unable to bring any of our current or future product candidates to market, or to acquire any marketed,previously approved products, our ability to create long-term stockholder value will be limited.If clinical studies for our product candidates are unsuccessful or significantly delayed, we will be unable to meet ouranticipated development and commercialization timelines, which would have an adverse impact on our business.Some of our new drug candidates must be approved in NDAs based on clinical studies demonstrating safety and/or effectiveness.For these types of studies, we rely on our investigational teams, who mainly are medical experts working in multicenter hospitals,to execute our study protocols with our product candidates. As a result, we have less control over our development program thanif we were to perform the studies entirely on our own. Third parties may not perform46 Table of Contentstheir responsibilities according to our anticipated schedule. Delays in our development programs could significantly increase ourproduct development costs and delay product commercialization.The commencement of clinical trials on our product candidates may be delayed for several reasons, including but not limited todelays in demonstrating sufficient pre-clinical safety required to obtain regulatory clearance to commence a clinical trial, reachingagreements on acceptable terms with prospective contract research organizations, clinical trial sites and licensees, manufacturingand quality assurance release of a sufficient supply of a product candidate for use in our clinical trials, delays in recruitingsufficient subjects for a clinical trial and/or obtaining institutional review board approval to conduct a clinical trial at aprospective clinical site. Once a clinical trial has begun, it may be delayed, suspended or terminated by us or by regulatoryauthorities for a variety of reasons, including without limitation ongoing discussions with regulatory authorities regarding thescope or design of our clinical trials, a determination by us or regulatory authorities that continuing a trial presents anunreasonable health risk to participants, failure to conduct clinical trials in accordance with regulatory requirements, lower thananticipated recruitment or retention rate of patients in clinical trials, inspection of the clinical trial operations or trial sites byregulatory authorities, the imposition of a clinical hold by the FDA, lack of adequate funding to continue clinical trials and/ornegative or unanticipated results of clinical trials.Patient enrollment, a significant factor in the time required to complete a clinical study, is affected by many factors, including thesize and nature of the study subject population, the proximity of patients to clinical sites, the eligibility criteria for the study, thedesign of the clinical study, competing clinical studies and clinicians’ and patients’ perceptions as to the potential advantages ofthe drug being studied in relation to available alternatives, including without limitation therapies being investigated by othercompanies. Further, completion of a clinical study and/or the results of a clinical study may be adversely affected by failure toretain subjects who enroll in a study but withdraw due to, among other things, adverse side effects, lack of efficacy, improvementin condition before treatment has been completed or for personal issues or who fail to return for or complete post-treatmentfollow-up.Changes in governmental regulations and guidance relating to clinical studies may occur and we may need to amend studyprotocols to reflect these changes. Protocol amendments may require us to resubmit protocols to institutional review boards forreexamination or renegotiate terms with contract research organizations and study sites and investigators, all of which mayadversely impact the costs or timing of or our ability to successfully complete a trial.Clinical trials required by the FDA for approval of our products may not produce the results we need to move forward in productdevelopment or to submit or obtain approval of an NDA. Success in pre-clinical testing and early phase clinical trials does notassure that late phase clinical trials will be successful. Even if the results of any future Phase 3 clinical trials are positive, we mayhave to commit substantial time and additional resources to conduct further pre-clinical and clinical studies before we can submitNDAs or obtain FDA approval for our product candidates.Clinical trials are expensive and at times difficult to design and implement, in part because they are subject to rigorous regulatoryrequirements. Further, if participating subjects or patients in clinical studies suffer drug-related adverse reactions during thecourse of such trials, or if we or the FDA believes that participating patients are being exposed to unacceptable health risks, wemay suspend the clinical trials. Failure can occur at any stage of the trials, and we could encounter problems that would cause usto abandon clinical trials and/or require additional clinical studies relating to a product candidate.Even if our clinical trials and laboratory testing are completed as planned, their results may fail to provide support forapproval of our products or for label claims that will make our products commercially viable.Positive results in nonclinical testing and early phase clinical studies do not ensure that late phase clinical studies will besuccessful or that our product candidates will be approved by the FDA. To obtain FDA approval of our proprietary productcandidates, we must demonstrate through nonclinical testing and clinical studies that each product is safe and effective for eachproposed indication. Further, clinical study results frequently are susceptible to varying interpretations. Medical professionals,investors and/or regulatory authorities may analyze or weigh study data differently than we do. In addition, determining the valueof clinical data typically requires application of assumptions and extrapolations to raw data. Alternative methodologies may leadto differing conclusions, including with respect to the safety or efficacy of our product candidates.47 Table of ContentsIn addition, if we license to third parties rights to develop our product candidates in other geographic areas or for otherindications, we may have limited control over nonclinical testing or clinical studies that may be conducted by such third-partylicensees in those territories or for those indications. If data from third-party testing identifies a safety or efficacy concern, suchdata could adversely affect our or another licensee’s development of such product.There is significant risk that our products could fail to show anticipated results in nonclinical testing and/or clinical studies and, asa result, we may elect to discontinue the development of a product for a particular indication or altogether. A failure to obtainrequisite regulatory approvals or to obtain approvals of the scope requested may delay or preclude us from marketing ourproducts or limit the commercial use of the products, and would have a material adverse effect on our business, financialcondition and results of operations.The novel use of HFA for any of our product candidates, or any of our other product candidates requiring novel particleengineering, may not receive regulatory approval, and without regulatory approval we will not be able to market our productcandidates.We are engaging in particle engineering for certain product candidates, including and especially the use of HFA for our PrimateneHFA product candidate. With respect to Primatene HFA, we have chosen to develop a formulation of the product candidatethat will use HFAs as a propellant because of an FDA-mandated phase-out of drugs utilizing CFCs as propellants. AlthoughHFAs have been used in other settings, using HFAs as a propellant in an epinephrine inhalation product is a novel use, and thereis no guarantee that we will obtain regulatory approval or, upon commercialization, market acceptance of this product. In additionto Primatene HFA, we are similarly engaging in particle engineering for additional product candidates and, similarly, there is noguarantee that we will obtain regulatory approval or, upon commercialization, market acceptance of these products.The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulations bythe FDA in the U.S. and regulatory authorities in other countries, with regulations differing from country to country. We are notpermitted to market our product candidates in the U.S. until we receive approval of an NDA from the FDA. NDA approvals mayrequire extensive preclinical and clinical data and supporting information to establish the product candidate’s safety andeffectiveness for each desired indication. NDAs must include significant information regarding the chemistry, manufacturing andcontrols for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and we may not besuccessful in obtaining approval. If we submit an NDA to the FDA, the FDA must decide whether to accept or reject thesubmission for filing. Any submissions may not be accepted for filing and review by the FDA. Even if a product is approved, theFDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling orrequire additional expensive and time-consuming post-approval clinical trials or reporting as conditions of approval. Regulatorsof other countries and jurisdictions have their own procedures for approval of product candidates with which we must complyprior to marketing in those countries or jurisdictions. Obtaining regulatory approval for marketing of a product candidate in onecountry does not necessarily ensure that we will be able to obtain regulatory approval in any other country.In addition, delays in approvals or rejections of marketing applications in the U.S. or other countries may be based upon manyfactors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatoryquestions regarding different interpretations of data and results, changes in regulatory policy during the period of productdevelopment and the emergence of new information regarding our product candidates or other products. Also, regulatory approvalfor any of our product candidates may be withdrawn.We also have plans to develop synthetic APIs. Our ongoing trials and studies may not be successful or regulators may not agreewith our conclusions regarding the preclinical studies and clinical trials we have conducted to date or approve the use of suchsynthetic APIs.If we are unable to obtain approval from the FDA or other regulatory agencies for our product candidates or synthetic APIs, wewill not be able to market such product candidates and our ability to achieve profitability may be materially impaired.48 ® ® ® Table of ContentsA fast track designation by the regulatory agencies, even if granted for any of our product candidates, may not lead to afaster development or regulatory review or approval process and does not increase the likelihood that our product candidateswill receive marketing approval. We do not currently have fast track designation for any of our product candidates but intend to seek such designation for ourintranasal naloxone product candidate, among others. If a drug is intended for the treatment of a serious or life-threateningcondition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may applyfor fast track designation. The FDA has broad discretion whether or not to grant this designation. Even if we believe a particularproduct candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we doreceive fast track designation, we may not experience a faster development process, review or approval compared to conventionalprocedures adopted by the FDA. In addition, the FDA may withdraw fast track designation if they believe that the designation isno longer supported by data from our clinical development program or if a competitor’s product candidate is approved. Manydrugs that have received fast track designation have failed to obtain FDA approval. The commercial success of our NDA product candidates will depend in significant measure on the label claims that the FDAapproves for such products.The scientific foundation of our NDA products will be based on our various proprietary technologies and the commercial successof these product candidates will depend in significant measure upon our ability to obtain FDA approval of labeling describingsuch products’ expected features or benefits. Failure to achieve FDA approval of product labeling containing adequateinformation on features or benefits will prevent or substantially limit our advertising and promotion of such features in order todifferentiate our proprietary technologies from those products that already exist in the market. This failure would have a materialadverse impact on our business.Our ANDA products are also subject to FDA approval of their labeling.Even if we are able to obtain regulatory approval for our generic products, state pharmacy boards or state agencies mayconclude that our products are not substitutable at the pharmacy level for the reference listed drug. If our generic products arenot substitutable at the pharmacy level for their reference listed drugs, this could materially reduce sales of our products andour business would suffer.Although the FDA may determine that a generic product is therapeutically equivalent to a brand product and indicate thistherapeutic equivalence by providing it with an “A” rating in the FDA’s Orange Book, this designation is not binding on statepharmacy boards or state agencies. As a result, in states that do not deem our product candidates substitutable at the pharmacylevel, physicians may be required to specifically prescribe our product or a generic product alternative in order for our product tobe dispensed. Should this occur with respect to one of our generic product candidates, it could materially reduce sales in thosestates, which would substantially harm our business.Our investments in biosimilar products may not result in products that are approved by the FDA or other foreign regulatoryauthorities and, even if approved by such authorities, may not result in commercially successful products.We plan to build on our existing platforms to produce biosimilar products in the future. In 2010, Congress amended the PHSA tocreate an abbreviated approval pathway for follow-on biologics. This approval pathway is available for “biosimilar” products,which are products that are highly similar to previously approved biologics notwithstanding minor differences in inactivecomponents. The process for bringing a biosimilar product to market is uncertain and may be drawn out for an extended period oftime. The FDA has not yet promulgated regulations governing this process and only one biosimilar application has been approvedto date . Approval of biosimilar applications may be delayed by exclusivity on the BLA for the reference product for up to twelveyears. Biosimilar applicants are also subjected to a patent resolution process that will require biosimilar applicants to share thecontents of their application and information concerning its manufacturing processes with counsel for the company holding theBLA for the reference drug and to engage in a patent litigation process that could delay or prevent the commercial launch of aproduct for many years.Biosimilar products are not presumed to be substitutable for the reference drug under the Biologics Price Competition andInnovation Act, or BPCIA. Biosimilar applicants must seek a separate FDA determination that they are49 Table of Contents“interchangeable” with the reference drug, meaning that they can be expected to produce the same clinical result in any givenpatient without an increase in risk due to switching from the brand product. The statutory standards for determining biosimilarityand interchangeability are broad and uncertain, and the FDA has broad discretion to determine the nature and extent of productcharacterization, nonclinical testing and clinical testing on a product-by-product basis.Products approved based on biosimilarity without an FDA determination of interchangeability may not be substitutable at theretail pharmacy level. Some states have passed laws limiting pharmacy substitution to biosimilar products that the FDA hasdetermined to be interchangeable, as well as restrictions on the substitution of interchangeable biosimilar products. Theserestrictions include, among other things, requirements for informing the patient and the prescribing physician of the substitutionor proposed substitution, authority for the prescribing physician and the patient to preclude substitution and recordkeepingrequirements. There is no certainty that other states will not impose similar restrictions or that states will not impose furtherrestrictions or preclude substitution of interchangeable biosimilar products entirely.Our competitive advantage in this area will depend on our success in demonstrating to the FDA that platform technology providesa level of scientific assurance that facilitates determinations of interchangeability, reduces the need for expensive clinical or othertesting and raises the scientific quality requirements for our competitors to demonstrate that their products are highly similar to abrand product. Our ability to succeed will depend in part on our ability to invest in new programs and develop data in a timeframethat enables the FDA to consider our approach as the FDA begins to implement the new law. BLA holders will develop strategiesand precedents for delaying or impeding approvals of biosimilar products and determinations of interchangeability. For example,the lengthy 12-year exclusivity protection provides the BLA holder for the reference drug with an opportunity to develop andreplace its original product with a modified product that may avoid a determination of interchangeability and that may qualify foran additional 12-year marketing exclusivity period, reducing the potential opportunity for substitution at the retail pharmacy levelfor interchangeable biosimilars. As brand and biosimilar companies gain greater understanding of and experience with the newregulatory pathway, we expect to see new and unexpected company strategies, FDA decisions and court decisions that will poseunexpected challenges that will prevent, delay or make more difficult biosimilar approvals. As an example, there is a currentlypending Citizen Petition filed with the FDA that argues that approving a biosimilar that relies on a reference product approvedunder a BLA submitted prior to passage of the BPCIA would constitute a taking under the Fifth Amendment to the U.S.Constitution that requires just compensation. The Citizen Petition requests that the FDA not accept for filing, file, approve,discuss or otherwise take any action with regard to any investigational new drug application or BLA for a product for which thereference product BLA was submitted prior to passage of the BPCIA. Should this petition be granted, there would be far fewerapproved biologics that could serve as reference products for biosimilar applications, which could have a significant adverseimpact on our business.In addition, the BPCIA was passed as part of the Affordable Care Act and there have been ongoing legislative proposals to repealthe Affordable Care Act. If the Affordable Care Act is amended or is repealed with respect to the biosimilar approval pathway,our opportunity to develop biosimilars (including interchangeable biologics) could be materially impaired and our business couldbe materially and adversely affected.Some of our products are used with drug delivery or companion diagnostic devices which have their own regulatory,manufacturing, reimbursement and other risks.Some of our products or product candidates may be used in combination with a drug delivery device, such as an injector , inhaleror other delivery system. Although the drug delivery devices we currently use in our products and product candidates areprovided by third parties, we recently entered into a collaboration agreement with a medical device manufacturer to develop adrug delivery system to be used for one of our pipeline products. These drug- device combination products are particularlycomplex, expensive and time-consuming to develop due to the number of variables involved in the final product design, includingease of patient and doctor use, establishing clinical efficacy, reliability and cost of manufacturing, regulatory approvalrequirements and standards and other important factors. We will be responsible for any regulatory filings arising from thiscollaboration and, although we have significant in-house and external regulatory expertise, we have never prepared or submittedan NDA to the FDA for a drug-device combination product. Our product candidates intended for use with such drug delivery , orexpanded indications that we may seek for our products used with such devices, may not be approved or may be substantiallydelayed in receiving approval if the devices do not gain and/or maintain their own regulatory approvals or clearances. Whereapproval of the drug product and device is sought under a single application, the increased complexity of the review process maydelay approval.50 Table of ContentsS ome of the drug delivery devices utilize in our products and product candidates are provided by single source unaffiliated third-party companies. We are dependent on the sustained cooperation and effort of those third-party companies both to supply thedevices and, in some cases, to conduct the studies required for approval or other regulatory clearance of the devices. We are alsodependent on those third-party companies continuing to maintain such approvals or clearances once they have been received.Failure of third-party companies to supply the devices, to successfully complete studies on the devices in a timely manner, or toobtain or maintain required approvals or clearances of the devices could result in increased development costs, delays in or failureto obtain regulatory approval and delays in product candidates reaching the market or in gaining approval or clearance forexpanded labels for new indications. We filed a Field Alert Report for enoxaparin in June 2013, as required by the FDA forcertain quality issues with safety implications, because the product did not meet functionality criteria. The needle-shieldingcomponent was breaking during shipping, preventing correct administration of the medication. While the specific issues related tothis Field Alert Report were resolved, we may experience similar issues in the future. In addition, loss of regulatory approval orclearance of a device that is used with our product may result in the removal of our product from the market.The drug delivery devices used with our products are also subject to many of the same reimbursement risks and challenges towhich our products are subject. A reduction in the availability of, or the coverage and/or reimbursement for, drug delivery devicesused with our products could have a material adverse effect on our product sales, business and results of operations.If pharmaceutical companies are successful in limiting the use of generics through their legislative, regulatory and/or otherefforts, our sales of generic products may suffer.Many pharmaceutical companies producing proprietary drugs have increasingly used state and federal legislative and regulatorymeans to delay, impede and/or prevent generic competition. These efforts have included but are not limited to the following:·making changes to the formulation of their product and arguing that potential generic competitors must demonstratebioequivalence and/or comparable abuse-resistance to the reformulated brand product;·pursuing new patents for existing products which may be granted immediately prior to the expiration of earlierpatents, which could extend patent protection for additional years or otherwise delay the launch of generics;·selling the brand product as an authorized generic, either by the brand company directly, through an affiliate or by amarketing partner;·using the FDA’s Citizen Petition process to request amendments to FDA standards or otherwise delay generic drugapprovals;·challenging FDA denials of Citizen Petitions in court and seeking injunctive relief to reverse approval of genericdrug applications;·seeking changes to standards in the U.S. Pharmacopeia/National Formulary, which are compendial drug standardsthat are recognized by industry and, in some instances, are enforceable under the FFDCA;·attempting to use the legislative and regulatory process to have drugs reclassified or rescheduled by the   DEA;·using the legislative and regulatory process to set standards and requirements for abuse deterrent formulations thatare patented or that will otherwise impede or prevent generic competition;·seeking special patent-term extensions through amendments to non-related federal legislation;·engaging in initiatives to enact state legislation that would restrict the substitution of certain generic drugs, includingproducts that we are developing;51 Table of Contents·entering into agreements with pharmacy benefit management companies that block the dispensing of genericproducts;·seeking patents on methods of manufacturing certain API;·settling patent lawsuits with generic companies in a manner that leaves the patent as an obstacle for approval ofother companies’ generic drugs;·settling patent litigation with generic companies in a manner that avoids forfeiture of or otherwise protects orextends the exclusivity period;·providing medical education or other information to physicians, third-party payers and federal and state regulatorsthat takes the position that certain generic products are inappropriate for approval or for substitution after approval;·seeking state law restrictions on the substitution of generic and biosimilar products at the pharmacy level withoutthe instruction or permission of a physician; and·seeking federal or state regulatory restrictions on the use of the same non-proprietary name as the reference brandproduct for a biosimilar or interchangeable biologic.If pharmaceutical companies or other third parties are successful in limiting the use of generic products through these or othermeans, our sales of generic products may decline. If we experience a material decline in generic product sales, our results ofoperations, financial condition and cash flows will suffer.O ur revenues may be adversely affected if we fail to obtain insurance coverage or adequate reimbursement for our productsfrom third-party payers and administrators.Our ability to successfully commercialize our products may depend in part on the availability of reimbursement for and insurancecoverage of our prescription products from government health administration authorities, private health insurers and other third-party payers and administrators, including Medicaid and Medicare. Third-party payers and administrators, including stateMedicaid programs and Medicare, have been challenging the prices charged for pharmaceutical products. Government and otherthird-party payers increasingly are limiting both coverage and the level of reimbursement for new drugs. Third-party insurancecoverage may not be available to patients for some of our products candidates. The continuing efforts of government and third-party payers to contain or reduce the costs of health care may limit our commercial opportunity. If government and other third-party payers do not provide adequate coverage and reimbursement for certain of our products, health care providers may notprescribe them or patients may ask their health care providers to prescribe competing products with more favorablereimbursement.Managed care organizations and other private insurers frequently adopt their own payment or reimbursement reductions.Consolidation among managed care organizations has increased the negotiating power of these entities. Private third-party payers,as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange forformulary inclusion. While these approaches generally favor generic products over brands, generic competition is stronger. Ourexisting products and our product candidates include proprietary products and generic products. Failure to obtain timely oradequate pricing or formulary placement for our products or obtaining such pricing or placement at unfavorable pricing couldadversely impact revenue. In addition to formulary tier co-pay differentials, private health insurance companies and self-insuredemployers have been raising co-payments required from beneficiaries, particularly for proprietary pharmaceuticals andbiotechnology products. Private health insurance companies also are increasingly imposing utilization management tools, such asrequiring prior authorization for a proprietary product if a generic product is available or requiring the patient to first fail on oneor more generic products before permitting access to a proprietary medicine. We do not currently have any managed careorganization agreements and do not intend to have managed care organization agreements in the future.52 Table of ContentsWe must manufacture our product at our facilities in conformity with cGMP regulations; failure to maintain compliance withcGMP regulations may prevent or delay the manufacture or marketing of our products or product candidates and may preventus from gaining approval of our products.All of our products and product candidates for use in clinical studies must be manufactured, packaged, labeled and stored inaccordance with cGMP. For our approved products, modifications, enhancements, or changes in manufacturing processes andsites may require supplemental FDA approval, which may be subject to a lengthy application process or which we may be unableto obtain.All facilities of Amphastar and our subsidiaries are periodically subject to inspection by the FDA and other governmental entities,and operations at these facilities could be interrupted or halted if the FDA or another governmental entity deems such inspectionsas unsatisfactory. In addition, our secondary heparin supplier in China has yet to be inspected by the FDA. Products manufacturedin our facilities must be made in a manner consistent with cGMP or similar standards in each territory in which we manufacture.Compliance with such standards requires substantial expenditures of time, money and effort in such areas as production andquality control to ensure full technical compliance. Failure to comply with cGMP or with other state or federal requirements mayresult in unanticipated compliance expenditures, total or partial suspension of production or distribution, suspension of review ofapplications submitted for approval of our product candidates, termination of ongoing research, disqualification of data derivedfrom studies on our products and/or enforcement actions such as recall or seizure of products, injunctions, civil penalties andcriminal prosecutions of the company and company officials. Any suspension of production or distribution would require us toengage contract manufacturing organizations to manufacture our products or to accept a hiatus in marketing our products. Anycontract manufacturing organization we engage will require time to learn our methods of production and to scale up to fullproduction of our products. Any delays caused by the transfer of manufacturing to a contract manufacturing organization mayhave a material adverse effect on our results of operations. Additionally, any contract manufacturing organization that we engagewill be subject to the same cGMP regulations as us, and any failure on their part to comply with FDA or other governmentalregulations will result in similar consequences.Our operations are subject to environmental, health and safety and other laws and regulations, with which compliance iscostly and which exposes us to penalties for non-compliance.Our business, products and product candidates are subject to federal, state and local laws and regulations relating to the protectionof the environment, natural resources and worker health and safety and the use, management, storage and disposal of hazardoussubstances, waste and other regulated materials. Because we own and operate real property, various environmental laws also mayimpose liability on us for the costs of cleaning up and responding to hazardous substances that may have been released on ourproperty, including releases unknown to us. These environmental laws and regulations also could require us to pay forenvironmental remediation and response costs at third-party locations where we dispose of or recycle hazardous substances. Thecosts of complying with these various environmental requirements, as they now exist or as may be altered in the future, couldadversely affect our financial condition and results of operations. For example, as a result of environmental concerns about theuse of CFCs, the FDA issued a final rule on January 16, 2009 that required the phase-out of the CFC version of our Primatene Mist product by December 31, 2011. This phase out caused us to halt sales of the CFC version of our Primatene Mist productsubsequent to December 31, 2011 and write off our inventory for the product, which had an adverse effect on our financialresults.We also must comply with data protection and data privacy requirements. Compliance with these laws, rules and regulationsregarding privacy, security and protection of employee data could result in higher compliance and technology costs for us, as wellas significant fines, penalties and damage to our global reputation and our brand as a result of non-compliance.Our products may be subject to federal and state laws and certain initiatives relating to cost control, which may decrease ourprofitability.In the U.S., we expect there may be federal and state proposals for cost controls. We expect that increasing emphasis on managedcare in the U.S. will continue to put pressure on the pricing of pharmaceutical products. In addition, we are required to pay rebatesto states, which are generally calculated based on the prices for our products that are paid by state Medicaid programs. Costcontrol initiatives could decrease the price that we charge, and increase the rebate amounts that53 ®® Table of Contentswe must provide, for any of our products in the future. Further, cost control initiatives could impair our ability to commercializeour products and our ability to earn significant revenues from commercialization. In the U.S., all of our pharmaceutical productsare subject to increasing pricing pressures. Such pressures have increased as a result of the Medicare Prescription DrugImprovement and Modernization Act of 2003, or MMA, due to the enhanced purchasing power of the private sector plans thatnegotiate on behalf of Medicare beneficiaries. To date, we do not believe that federal and state cost control initiatives have had adirect impact on the pricing of our products, but they could have such an impact in the future. Similarly, rebate obligations havebeen relatively stable, but if such obligations increase, our revenue could be adversely affected. In addition, if the MMA or theAffordable Care Act were amended to impose direct governmental price controls and access restrictions, it would have asignificant adverse impact on our business. Furthermore, managed care organizations, as well as Medicaid and other governmentagencies, continue to seek price discounts. Some states have implemented, and other states are considering, price controls orpatient access constraints under the Medicaid program, and some states are considering price-control regimes that would affectrebate levels and apply to broader segments of their populations that are not Medicaid-eligible. Further, there continue to belegislative proposals to amend U.S. laws to allow the importation into the U.S. of prescription drugs, which can be sold at pricesthat are regulated by the governments of various foreign countries. In addition to well-documented safety concerns, such as theincreased risk of counterfeit products entering the supply chain, such importation could impact pharmaceutical prices in the U.S.Some of our products are marketed without FDA approval and may be subject to enforcement actions by the FDA.A number of our prescription products are marketed without FDA approval. These products, like many other unapprovedprescription drugs on the market, contain active ingredients that were first marketed prior to the enactment of the FFDCA. TheFDA has assessed these products in a program known as the “Prescription Drug Wrap-Up” and has stated that these drugs cannotbe lawfully marketed unless they comply with certain “grandfather” exceptions to the definition of “new drug” in the FFDCA.These exceptions have been strictly construed by FDA and by the courts, and the FDA has stated that it is unlikely that any of theunapproved prescription drugs on the market, including certain of our drugs, qualify for the exceptions. At any time, the FDAmay require that some or all of our unapproved prescription drugs be approved and may direct that we recall these productsand/or cease marketing the products until they are approved. The FDA may also take enforcement actions based on our marketingof these unapproved products, including but not limited to the issuance of an untitled letter or a warning letter, and a judicialaction seeking injunction, product seizure and civil or criminal penalties. While the FDA has not undertaken any suchenforcement actions against our unapproved drugs, the enforcement posture could change at any time and our ability to marketsuch drugs would terminate with little or no notice. Moreover, our competitors may market FDA approved prescription productsthat compete against our unapproved prescription products. Such competitors have brought, and in the future may bring, claimsagainst us alleging unfair competition or related claims.As a result of our meetings with the FDA in 2009, we decided to discontinue all of our products that were subject to thePrescription Drug Wrap-Up program, with the exception of epinephrine in vial form. These products were all produced at oursubsidiary. During the third quarter of 2010, the FDA requested that we reintroduce several of the withdrawn products to copewith a drug shortage, while we prepared and filed applications for approval of the products. Between August and October, 2010,we reintroduced atropine, calcium chloride, morphine, dextrose, epinephrine, and sodium bicarbonate injections, and continue tomarket these products without FDA approval. For the years ended December 31, 2015, 2014, and 2013, we recorded net revenuesof $40.2 million, $27.0 million, and $29.6 million, respectively, from unapproved products. We have filed three ANDAs and arepreparing additional applications with respect to these products.Our reporting and payment obligations under the Medicare and/or Medicaid drug rebate programs and other governmentalpurchasing and rebate programs are complex and may involve subjective decisions that could change as a result of newbusiness circumstances, new regulatory guidance or advice of legal counsel. Any determination of failure to comply with thoseobligations could subject us to penalties and sanctions which could have a material adverse effect on our business, financialposition and results of operations and the market value of our common stock could decline.The regulations regarding reporting and payment obligations with respect to Medicare and/or Medicaid reimbursement andrebates and other governmental programs are complex. Because our processes for these calculations and the54 Table of Contentsjudgments involved in making these calculations involve, and will continue to involve, subjective decisions and complexmethodologies, these calculations are subject to the risk of errors. In addition, they are subject to review and challenge by theapplicable governmental agencies, and it is possible that such reviews could result in material changes. The Affordable Care Actincludes a provision requiring the Centers for Medicare and Medicaid Services, or CMS, to publish a weighted AverageManufacturer Price, or AMP, for all multi-source drugs. The provision was effective October 1, 2010; however, weighted averageAMP’s have not yet been published by CMS, except in draft form, and have not been implemented for use in the calculation ofFederal Upper Limits. Although the weighted average AMP would not reveal our individual AMP, publishing a weighted averageAMP available to customers and the public at large could negatively affect our leverage in commercial price negotiations.In addition, as also disclosed herein, a number of state and federal government agencies are conducting investigations ofmanufacturers’ reporting practices with respect to Average Wholesale Prices, or AWP, in which they have suggested thatreporting of inflated AWP has led to excessive payments for prescription drugs. Numerous pharmaceutical companies have beennamed as defendants in various actions relating to pharmaceutical pricing issues and whether allegedly improper actions bypharmaceutical manufacturers led to excessive payments by Medicare and/or Medicaid.Any governmental agencies that have commenced, or may commence, an investigation of our business relating to the sales,marketing, pricing, quality or manufacturing of pharmaceutical products could seek to impose, based on a claim of violation offraud and false claims laws or otherwise, civil and/or criminal sanctions, including fines, penalties and possible exclusion fromfederal health care programs including Medicare and/or Medicaid. Some of the applicable laws may impose liability even in theabsence of specific intent to defraud. Furthermore, should there be ambiguity with regard to how to properly calculate and reportpayments — and even in the absence of any such ambiguity — a governmental authority may take a position contrary to aposition we have taken, and may impose civil and/or criminal sanctions. Any such penalties or sanctions could have a materialadverse effect on our business, financial position and results of operations and could cause the market value of our common stockto decline.Proposed FDA labeling rules could result in additional liability risks for our products.The FDA has proposed allowing generic drug manufacturers to independently update product labeling to reflect newly discoveredsafety data, which could result in failure-to-warn suits. This could increase our labeling obligations and potentially increase ourliability risk for our products.We may be subject to enforcement action if we engage in the off-label promotion of our products.Our promotional materials and training methods must comply with the FFDCA and other applicable laws and regulations,including restraints and prohibitions on the promotion of off-label, or unapproved, use. Physicians may prescribe our products foroff-label use without regard to these prohibitions, as the FFDCA does not restrict or regulate a physician’s choice of treatmentwithin the practice of medicine. However, if the FDA determines that our promotional materials or training constitutes promotionof an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory orenforcement actions, including but not limited to the issuance of an untitled letter or warning letter, and a judicial action seekinginjunction, product seizure and civil or criminal penalties. It is also possible that other federal, state or non-U.S. enforcementauthorities might take action if they consider our promotional or training materials to constitute promotion of an unapproved use,which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims forreimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. Although ourpolicy is to refrain from statements that could be considered off-label promotion of our products, the FDA or another regulatoryagency could disagree and conclude that we have engaged in off-label promotion. In addition, the off-label use of our productsmay increase the risk of product liability claims. Product liability claims are expensive to defend and could divert ourmanagement’s attention, result in substantial damage awards against us and harm our reputation.The pharmaceutical industry is highly regulated and pharmaceutical companies are subject to various federal and state fraudand abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act.Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that55 Table of Contentsa statute or prohibition has been violated. The laws that may affect our ability to operate include:·the federal healthcare programs’ anti-kickback law, which prohibits, among other things, persons from knowinglyand willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or toinduce either the referral of an individual for, or the purchase, order or recommendation of, any good or service forwhich payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;·federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, orcausing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false orfraudulent;·the federal Health Insurance Portability and Accountability Act of 1996, which created federal criminal laws thatprohibit executing a scheme to defraud any healthcare benefit program or making false statements relating tohealthcare matters;·the FFDCA and similar laws regulating advertisement and labeling;·the U.S. Foreign Corrupt Practices Act, which prohibits corrupt payments, gifts or transfers of value to non-U.S.officials; and·non-U.S. and U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claimslaws which may apply to items or services reimbursed by any third-party payer, including commercial insurers.The federal false claims laws have been interpreted to apply to arrangements between pharmaceutical manufacturers on the onehand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions andregulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawnnarrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject toscrutiny if they do not qualify for an exemption or safe harbor. Most states also have statutes or regulations similar to the federalanti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs,or, in several states, apply regardless of the payer. Administrative, civil and criminal sanctions may be imposed under thesefederal and state laws.Further, the Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminalhealthcare fraud statutes. A person or entity can now be found guilty under the Affordable Care Act without actual knowledge ofthe statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that aclaim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulentclaim for purposes of the false claims statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines,civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation ofsuch prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfullydefend against it, could result in a material adverse effect on our reputation, business, results of operations and financialcondition.To enforce compliance with the federal laws, the U.S. Department of Justice, or DOJ, has increased its scrutiny of interactionsbetween healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictionsand settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming and can divertmanagement’s attention from the business. Additionally, if a healthcare provider settles an investigation with the DOJ or otherlaw enforcement agencies, we may be forced to agree to additional onerous compliance and reporting requirements as part of aconsent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise havean adverse effect on our business.Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for avariety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants andother monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by56 Table of Contentsfederal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information tothe Medicaid Rebate Program to reduce liability for Medicaid rebates.In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing.Some states, such as California, Massachusetts and Vermont, mandate implementation of commercial compliance programs,along with the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting commercialcompliance environment and the need to build and maintain robust and expandable systems to comply with different complianceand/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one ormore of the requirements.If the activities of any of our business partners are found to be in violation of these laws or any other federal and state fraud andabuse laws, they may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment orrestructuring of its activities with regard to the commercialization of our products, which could harm the commercial success ofour products and materially affect our business, financial condition and results of operations. While we have implementednumerous risk mitigation measures to comply with such regulations in this complex operating environment, we cannot guaranteethat we will be able to effectively mitigate all operational risks. While we have developed and instituted a corporate complianceprogram, we cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with allpotentially applicable U.S. federal and state regulations and/or laws, all potentially applicable foreign regulations and/or lawsand/or all requirements of the corporate integrity agreement. Because of the far-reaching nature of these laws, we may be requiredto alter or discontinue one or more of our business practices to be in compliance with these laws. If we fail to adequately mitigateour operational risks or if we or our agents fail to comply with any of those regulations, laws and/or requirements, a range ofactions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate,restrictions on our products or manufacturing processes, withdrawal of our products from the market, significant fines, exclusionfrom government healthcare programs or other sanctions or litigation. Such occurrences could have a material and adverse effecton our product sales, business and results of operations.The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform,especially in light of the lack of applicable precedent and regulations. Federal or state regulatory authorities might challenge ourcurrent or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business,results of operations and financial condition. In addition, efforts to ensure that our business arrangements with third parties willcomply with these laws and regulations will involve substantial costs. Any state or federal regulatory review of us or the thirdparties with whom we contract, regardless of the outcome, would be costly and time-consuming.Risks Relating to our Intellectual PropertyOur success depends on our ability to protect our intellectual property.In addition to obtaining FDA approval for our generic and proprietary drug candidates, our success also depends on our ability toobtain and maintain patent protection for new products developed utilizing our technologies, in the U.S. and in other countries,and to enforce these patents. The patent positions of pharmaceutical firms, including us, are generally uncertain and involvecomplex legal and factual issues. Any of our patent claims in our approved and pending non-provisional and provisional patentapplications relating to our technologies may not be issued or, if issued, any of our existing and future patent claims may not beheld valid and enforceable against third-party infringement. Moreover, any patent claims relating to our technologies may not besufficiently broad to protect our products. In addition, issued patent claims may be challenged, potentially invalidated, orpotentially circumvented. Our patent claims may not afford us protection against our competitors. We currently have a number ofU.S. and foreign patents issued. However, issuance of a patent is not conclusive evidence of its validity or enforceability. We maynot receive patents for any of our pending patent applications or any patent applications that we may file in the future and ourissued patents may not be upheld if challenged.In March 2013, the U.S. transitioned to a first inventor to file system in which, assuming the other requirements for patentabilityare met, the first inventor to file a patent application is entitled to receive a patent (rather than the first to invent as was the caseunder prior U.S. law). Accordingly, it is possible that potentially invalidating prior art may57 Table of Contentsbecome available in between the time that we develop an invention and file a patent application that covers the invention. Inaddition, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, orUSPTO, or become involved in opposition, derivation, reexamination, inter parties review or interference proceedingschallenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding orlitigation could reduce the scope of, or invalidate our patent rights, allow third parties to commercialize our technology orproducts and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize productswithout infringing third party patent rights.Past enforcement of intellectual property rights in countries outside the U.S., including China in particular, has been limited ornon-existent. Future enforcement of patents and proprietary rights in many other countries will likely be problematic orunpredictable. Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in anothercountry. Claim interpretation and infringement laws vary by nation, so the extent of any patent protection is uncertain and mayvary in different jurisdictions.We also rely on, or intend to rely on, our trademarks, trade names and brand names to distinguish our products from the productsof our competitors and have registered or applied to register our own trademarks. However, our trademark applications may notbe approved. Third parties may also oppose our trademark applications or otherwise challenge our use of the trademarks. In theevent that our trademarks are successfully challenged, we could be forced to rebrand our product, which could result in loss ofbrand recognition and could require us to devote significant resources to advertising and marketing these new brands. Further, ourcompetitors may infringe our trademarks or we may not have adequate resources to enforce our trademarks.We may become involved in patent litigations or other intellectual property proceedings relating to our future productapprovals, which could result in liability for damages or delay or stop our development and commercialization efforts.The pharmaceutical industry has been characterized by significant litigation and other proceedings regarding patents, patentapplications and other intellectual property rights. The situations in which we may become parties to such litigation orproceedings may include any third parties initiating litigation claiming that our products infringe their patent or other intellectualproperty rights; in such case, we will need to defend against such proceedings. For example, the field of generic pharmaceuticalsis characterized by frequent litigation that occurs in connection with generic pharmaceutical companies filing ANDAs, ParagraphIV certifications and attempting to invalidate the patents of the proprietary reference drug. Any non-generic products that wesuccessfully develop may be subject to such challenge by third parties. As a generic pharmaceutical company, we also expect tofile ANDAs, Paragraph IV certifications and to attempt to invalidate patents of third party reference drugs for which we seek todevelop generic versions.The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could besubstantial. Many of our potential competitors will be able to sustain the cost of such litigation and proceedings more effectivelythan we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patentlitigation or other intellectual property proceedings could have a material adverse effect on our ability to compete in themarketplace. Patent litigation and other intellectual property proceedings may also consume significant management time.In the event that a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be costly,difficult and time-consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patentsagainst challenge could be expensive and time-consuming and could divert our management’s attention. We may not havesufficient resources to enforce our intellectual property rights or to defend our patent or other intellectual property rights against achallenge. If we are unsuccessful in enforcing and protecting our intellectual property rights and protecting our products, it couldmaterially harm our business.For example, we have been involved in litigation related to our sales of enoxaparin. A preliminary injunction was issued onOctober 28, 2011 that barred us from selling our generic enoxaparin until the injunction was stayed on January 25, 2012. Afterappeal, the U.S. Supreme Court denied certiorari and on July 19, 2013, the District Court granted our motion for summaryjudgment in accordance with the Federal Circuit opinion and denied Momenta and Sandoz’s motion for leave to amendinfringement contentions. However, on November 10, 2015, the Federal Circuit reversed the District Court’s granting of summaryjudgment. For further details, see the section titled Litigation in Note 18 in the58 Table of Contentsaccompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K. The protracted litigationinvolved – and may continue to involve – large legal expenses and the diversion of management’s time and effort away from thebusiness. Any future adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses –whether in this litigation or in other litigation – could result in substantial monetary damage awards and could prevent us frommanufacturing and selling our products, which could have a material and adverse effect on our financial condition.There may also be situations where we use our business judgment and decide to market and sell products, notwithstanding thefact that allegations of patent infringement(s) have not been finally resolved by the courts, which situation is commonly referredto as an at-risk launch. The risk involved in doing so can be substantial because the remedies available to the owner of a patent forinfringement may include, among other things, damages measured by the profits lost by the patent owner and not necessarily bythe profits earned by the infringer as well as injunctive relief, which would halt our ability to market and sell such productsaltogether. In the case of a willful infringement, the definition of which is subjective, such damages may be increased up to threetimes. Moreover, because of the discount pricing typically involved with generic products, patented proprietary productsgenerally realize a substantially higher profit margin than generic products. An adverse decision in a case such as this or in othersimilar litigation could have a material adverse effect on our business, financial position and results of operations and could causethe market value of our common stock to decline.With respect to our proprietary products, if we fail to adequately protect or enforce our intellectual property rights, we couldlose sales to generic versions of our proprietary products which could cause a material adverse effect on our business,financial position and results of operations and could cause the market value of our common stock to decline.The success of our proprietary products depends in part on our ability to obtain, maintain and enforce patents and trademarks, andto protect trade secrets, know-how and other proprietary information. Our ability to commercialize any proprietary productsuccessfully will largely depend upon our ability to obtain and maintain patents of sufficient scope to prevent third parties fromdeveloping substantially equivalent products. In the absence of patent and trade secret protection, competitors may adverselyaffect our proprietary products business by independently developing and marketing substantially equivalent products. It is alsopossible that we could incur substantial costs if we are required to initiate litigation against others to protect or enforce ourintellectual property rights.We have filed patent applications covering compositions of, methods of making and/or methods of using, our proprietaryproducts and proprietary product candidates. We may not be issued patents based on patent applications already filed or that wemay file in the future, and if patents are issued, they may be insufficient in scope to cover our proprietary products. The issuanceof a patent in one country does not ensure the issuance of a similar patent in any other country, or that we will even seek patentprotection in all countries worldwide. Furthermore, the patent position of companies in the pharmaceutical industry generallyinvolves complex legal and factual questions and has been and remains the subject of much litigation. Legal standards relating toscope and validity of patent claims are evolving and may differ in various countries. Any patents we have obtained, or will obtainin the future, may be challenged, invalidated or circumvented. Moreover, the USPTO or any other governmental agency, as wellas third parties, may commence interference, opposition or other related third party proceedings involving our patents or patentapplications. Any challenge to, or invalidation or circumvention of, our patents or patent applications would be costly, wouldrequire significant time and attention of our management, could cause a material adverse effect on our business, financial positionand results of operations and could cause the market value of our common stock to decline.Our unpatented trade secrets, know-how, confidential and proprietary information and technology may be inadequatelyprotected.We rely on unpatented trade secrets, know-how and technology. This intellectual property is difficult to protect, especially in thepharmaceutical industry, where much of the information about a product must be submitted to regulatory authorities during theregulatory approval process. We seek to protect trade secrets, confidential information and proprietary information, in part, byentering into confidentiality and invention assignment agreements with employees, consultants and others. These parties maybreach or terminate these agreements, and we may not have adequate remedies for such breaches. Furthermore, these agreementsmay not provide meaningful protection for our59 Table of Contentstrade secrets or other confidential or proprietary information or result in the effective assignment to us of intellectual property,and may not provide an adequate remedy in the event of unauthorized use or disclosure of confidential information or otherbreaches of the agreements. Despite our efforts to protect our trade secrets and our other confidential and proprietary information,we or our collaboration partners, board members, employees, consultants, contractors, or scientific and other advisors mayunintentionally or willfully disclose our proprietary information to competitors.There is a risk that our trade secrets and other confidential and proprietary information could have been, or could, in the future, beshared by any of our former employees with, and be used to the benefit of, any company that competes with us.If we fail to maintain trade secret protection or fail to protect the confidentiality of our other confidential and proprietaryinformation, our competitive position may be adversely affected. Competitors may also independently discover our trade secrets.Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming anduncertain. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able toassert our trade secret protections against them, which could have a material adverse effect on our business.There can be no assurance of timely patent review and approval to minimize competition and generate sufficient revenues.There can be no assurance that the USPTO will have sufficient resources to review and grant our patent applications in a timelymanner. Consequently, our patent applications may be delayed for many years (if they issue as patents at all), which wouldprevent intellectual property protection for our products. If we fail to successfully commercialize our products due to the lack ofintellectual property protection, we may be unable to generate sufficient revenues to meet or grow our business according to ourexpected goals and this may have a materially adverse effect on our profitability, financial condition and operations.We may be subject to claims that we, our board members, employees or consultants have used or disclosed alleged tradesecrets or other proprietary information belonging to third parties and any such individuals who are currently affiliated withone of our competitors may disclose our proprietary technology or information.As is commonplace in the biotechnology and pharmaceutical industries, some of our board members, employees and consultantsare or have been employed at, or associated with, other biotechnology or pharmaceutical companies that compete with us. Whileemployed at or associated with these companies, these individuals may become exposed to or involved in research andtechnology similar to the areas of research and technology in which we are engaged. We may be subject to claims that we, or ouremployees, board members or consultants have inadvertently, willfully or otherwise used or disclosed alleged trade secrets orother proprietary information of those companies. Litigation may be necessary to defend against such claims.We have entered into confidentiality agreements with our executives and key consultants. However, we do not have, and are notplanning to enter into, any confidentiality agreements with our non-executive directors because they have a fiduciary duty ofconfidentiality as directors. Our former board members, employees or consultants who are currently employed at, or associatedwith, one of our competitors may unintentionally or willfully disclose our proprietary technology or information.Risks Related to Ownership of Our Common StockOur quarterly and annual operating results may fluctuate significantly or may fall below the expectations of investors orsecurities analysts, each of which may cause our stock price to fluctuate or decline.Our operating results may be subject to quarterly and annual fluctuations as a result of a number of factors, including thefollowing:·the commercial success of our key products and those of our customers ;  60 Table of Contents·results of clinical trials of our product candidates or those of our competitors;·pricing actions by competitors;·the timing of orders or any cancellation of orders from our customers;·manufacturing or supply interruptions;·actions by regulatory bodies, such as the FDA, that have the effect of delaying or rejecting approvals of our productcandidates;·changes in the prescription practices of physicians;·changes or developments in laws or regulations applicable to our product candidates;·introduction of competitive products or technologies;·failure to meet or exceed financial projections we provide to the public;·actual or anticipated variations in quarterly operating results;·failure to meet or exceed the estimates and projections of securities analysts or investors;·the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;·announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capitalcommitments or achievement of significant milestones;·developments concerning our sources of manufacturing supply;·disputes or other developments relating to patents or other proprietary rights;·litigation or investigations involving us, our industry, or both;·additions or departures of key scientific or management personnel;·announcements or issuances of debt, equity or convertible securities;·sales of our common stock by our stockholders;·changes in the market valuations of similar companies;·major catastrophic events;·major changes in our board of directors or management or departures of key personnel;·general economic and market conditions and overall fluctuations in U.S. equity markets; or·the other factors described in this “Item 1.A Risk Factors” section.Any one of the factors above, or the cumulative effect of some of the factors referred to above, may result in significantfluctuations in our quarterly or annual operating results. This variability and unpredictability could result in our failing to meetour revenue, billings or operating results expectations or those of securities analysts or investors for any period. In addition, asignificant percentage of our operating expenses are fixed in nature and based on forecasted revenue trends. Accordingly, in theevent of revenue shortfalls, we are generally unable to mitigate the negative impact on operating61 Table of Contentsresults in the short term. If we fail to meet or exceed such expectations for these or any other reasons, our business could bematerially adversely affected and our stock price could fluctuate or decline substantially.In addition, if the market for pharmaceutical company stocks or the stock market in general experience a loss of investorconfidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results orfinancial condition. The trading price of our common stock might also decline in reaction to events that affect other companies inour industry even if these events do not directly affect us. Our stock price may also be affected by sales of large blocks of ourstock or an interruption or change in our stock buyback program .  In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has oftenbeen brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securitieslitigation could result in substantial costs and divert our management’s attention and resources from our business, and this couldhave a material adverse effect on our business, operating results and financial condition.Future sales of our common stock may cause our stock price to decline.If we or our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market,the trading price of our common stock could decline. We maintain a shelf registration statement on Form S-3 pursuant to whichwe may, from time to time, sell up to an aggregate of $250 million of our common stock, preferred stock, depositary shares,warrants, units, or debt securities. We may also issue shares of common stock or securities convertible into our common stockfrom time to time in connection with financings, acquisitions, investments or otherwise. Any such issuances would result indilution to our existing stockholders and could cause our stock price to fall.In addition, we have registered approximately 20.3 million shares subject to options and RSUs outstanding or reserved for futureissuance under our equity compensation plans. If these additional shares are sold, or if it is perceived that they will be sold, in thepublic market, the trading price of our common stock could decline.Jack Y. Zhang and Mary Z. Luo, each of whom serves as a director and an executive officer, own a significant percentage ofour stock and will be able to exert significant control over matters subject to stockholder approval.As of March 8, 2016, Jack Y. Zhang and Mary Z. Luo, each of whom serves as one of our directors and executive officers, andtheir affiliates beneficially own approximately 25.8% of our outstanding common stock, including shares of common stocksubject to options exercisable within 60 days of March 8, 2016. Our directors, executive officers and each of our stockholderswho own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 28.9% of theoutstanding, including shares of our common stock, based on the number of shares outstanding and shares of our common stocksubject to options exercisable within 60 days of March 8, 2016. As a result, these stockholders, if acting together, will be able toinfluence or control matters requiring approval by our stockholders, including the election of directors and the approval ofmergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in away with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect ofdelaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receivea premium for their common stock as part of a sale of our company and might ultimately affect the market price of our commonstock.We do not intend to pay dividends for the foreseeable future.The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that wewill pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in thefuture will be at the discretion of our board of directors and will depend upon results of operations, financial condition,contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Ourexisting loan agreements restrict, and any future indebtedness may restrict, our ability to pay dividends. Investors seeking cashdividends should not purchase our common stock. Accordingly, realization of a gain on your investment will depend on theappreciation of the price of our common stock, which may never occur.62 Table of ContentsThe requirements of being a public company may strain our resources, divert management’s attention and affect our ability toattract and retain executive management and qualified board members.As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-FrankAct, the listing requirements of the NASDAQ Stock Market LLC and other applicable securities rules and regulations.Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities moredifficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an“emerging growth company,” as defined in the JOBS Act. The Sarbanes-Oxley Act requires, among other things, that wemaintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, ifrequired, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard,significant resources and management oversight may be required. As a result, management’s attention may be diverted from otherbusiness concerns, which could adversely affect our business and operating results. Although we have already hired additionalemployees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants,which will increase our costs and expenses.In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creatinguncertainty for public companies, increasing legal and financial compliance costs and making some activities more timeconsuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack ofspecificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory andgoverning bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated byongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws,regulations and standards, and this investment may result in increased general and administrative expenses and a diversion ofmanagement’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with newlaws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related totheir application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adverselyaffected.We also believe that being a public company and these new rules and regulations make it more expensive for us to obtain directorand officer liability insurance .As a result of disclosure of information in this Annual   R eport on Form 10-K and in filings required of a public company, ourbusiness and financial condition are more visible, which we believe may result in threatened or actual litigation, including bycompetitors and other third parties. If such claims are successful, our business and operating results could be adversely affected.Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary toresolve them, could divert the resources of our management and adversely affect our business and operating results.We may become involved in securities class action litigation that could divert management’s attention from our business andadversely affect our business and could subject us to significant liabilities.The stock markets have from time to time experienced significant price and volume fluctuations that have affected the marketprices for the common stock of pharmaceutical companies. These broad market fluctuations as well as a broad range of otherfactors, including the realization of any of the risks described in this section, may cause the market price of our common stock todecline. In the past, securities class action litigation has often been brought against a company following a decline in the marketprice of its securities. This risk is especially relevant for us because pharmaceutical companies generally experience significantstock price volatility. We may become involved in this type of litigation in the future. Litigation is often expensive and coulddivert management’s attention and resources from our primary business, which could adversely affect our business. Any adversedetermination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that wemake significant payments.We are an emerging growth company and the reduced reporting requirements applicable to emerging growth companies maymake our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions fromvarious reporting requirements that are applicable to public companies that are not emerging growth companies63 Table of Contentsincluding, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of theSarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxystatements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation andstockholder approval of any golden parachute payments not previously approved. Investors may find our common stock lessattractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there maybe a less active trading market for our common stock, and our stock price may be more volatile.In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extendedtransition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Inother words, an emerging growth company can delay the adoption of certain accounting standards until those standards wouldotherwise apply to private companies. However, we chose to “opt out” of such extended transition period, and as a result, wecomply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periodfor complying with new or revised accounting standards was irrevocable.As an emerging growth company, we have also chosen to take advantage of certain provisions of the JOBS Act that allow us toprovide less information in our public reports than would otherwise be required if we are not an emerging growth company. As aresult, this Annual Report on Form 10-K includes less information about us than would otherwise be required if we were not anemerging growth company within the meaning of the JOBS Act, which may make it more difficult to evaluate an investment inour company.We would cease to be an emerging growth company upon the earliest of: (i) the last day of the fiscal year following the fifthanniversary of the completion of our initial public offering, which occurred on June 25, 2014, (ii) the last day of the fiscal yearduring which we have annual gross revenue of at least $1.0 billion, (iii) the date on which we are deemed to be a “largeaccelerated filer” under the Exchange Act (we will qualify as a large accelerated filer as of the first day of the first fiscal year afterwe have (a) more than $700.0 million in outstanding common equity held by our non-affiliates and (b) been public for at least 12months; the value of our outstanding common equity will be measured each year on the last business day of our second fiscalquarter); or (iv) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities.Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage anacquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by ourstockholders to replace or remove our current management.Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions ofthe Delaware General Corporation Law, or the DGCL, could depress the trading price of our common stock by making it moredifficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders,including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:·authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares ofwhich may be issued without stockholder approval;·prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meetingof our stockholders;·eliminating the ability of stockholders to call a special meeting of stockholders;·establishing advance notice requirements for nominations for election to the board of directors or for proposingmatters that can be acted upon at stockholder meetings; and·establishing a classified board of directors, whereby only one-third of the members of our board of directors areelected at one time.64 Table of ContentsThese provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management bymaking it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing themembers of our management. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delawarecorporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of threeyears following the date on which the stockholder became an interested stockholder, unless such transactions are approved by ourboard of directors. This provision could delay or prevent a change of control, whether or not it is desired by or beneficial to ourstockholders, which could also affect the price that some investors are willing to pay for our common stock. Item 1B. Unresolved Staff Comments.Not applicable.Item 2. Properties.Our manufacturing facilities are located in Rancho Cucamonga and South El Monte, California; Canton, Massachusetts; É ragny-sur-Epte, France; and Nanjing, China. We own or lease a total of 60 buildings at six locations in the U.S., France and China, thatcomprise 1. 6   million square feet of manufacturing, research and development, distribution, packaging, laboratory, office andwarehouse space. Our facilities are regularly inspected by the FDA in connection with our product approvals, and we believe thatall of our facilities are being operated in material compliance with the FDA’s cGMP regulations.We are currently expanding our facility in Nanjing, China and we expect that the investment in expanding our facility in Chinawill require a total of up to approximately $15.0 million. We currently have contractual commitments with third parties obligatingus to undertake this investment.In April 2014, we acquired Merck’s API manufacturing business in É ragny-sur-Epte, France, which manufactures porcine insulinAPI and recombinant human insulin API, and expect to continue the current site activities.The following table provides a summary of our owned properties as of December 31, 2015 :   Aggregate       Facility Size     Location (in square feet) Primary Use Segment RanchoCucamonga,CA 267,674 Headquarters, research and development, laboratories, manufacturing,packaging, warehousing and administration offices Finished pharmaceuticalproducts Éragny-sur-Epte,France 251,983 Manufacturing, laboratories, warehousing and administration offices API Canton, MA 251,750 Manufacturing, packaging, warehousing, distribution and administration offices Finished pharmaceuticalproducts Nanjing, China 352,952 Manufacturing, research and development and warehousing Finished pharmaceuticalproducts Chino, CA 57,968 Research and development, and laboratories Finished pharmaceuticalproducts South El Monte,CA 10,000 Manufacturing Finished pharmaceuticalproducts  65 Table of ContentsThe properties leased by us have expiration dates ranging from 201 6 to 2025 (including certain renewal options). The followingtable provides a summary of our leased properties:   Aggregate       Facility Size     Location (in square feet) Primary Use Segment Nanjing,China 6,728 Procurement, manufacturing, laboratories and administration offices Finished pharmaceutical products RanchoCucamonga,CA 94,545 Warehousing, distribution and administration offices Finished pharmaceutical products South ElMonte, CA 323,358 Manufacturing, packaging, warehousing, distribution and administrationoffices Finished pharmaceutical products  We believe that our current manufacturing capacity is adequate for the near term. We have in the past approached capacity at oneof our facilities largely as a result of the FDA’s request that we reintroduce certain previously discontinued products to help copewith a nation-wide shortage of these products. We believe that these capacity issues have been ameliorated as a result of certainother manufacturers re-entering the market and increasing the production of the products that were subject to the shortage. Item 3. Legal Proceedings.The disclosure under Note 1 8 of the Notes to the Consolidated Financial Statements included elsewhere in this report isincorporated by reference in this Part I, Item 3.Item 4. Mine Safety Disclosures.Not applicable.66 Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.Our c ommon s tock is listed on the NASDAQ Global Select Market and has trade d under the symbol “AMPH” since our initialpublic offering on June 25, 2014.   Prior to this date, there was no public market for our commo n stock. As a result, we have notset forth quarterly information with respect to the high and low prices for our common stock for the two most recent fiscal years.The following table sets forth the high and low market price for our c ommon s tock during each of the quarterly periodsindicated, as reported on the NASDAQ Global Select Market :   Market Price   High Low 2014       Second Quarter (since June 25, 2014) $10.50 $8.75 Third Quarter $12.23 $8.69 Fourth Quarter $12.39 $9.93         2015       First Quarter $15.51 $11.31 Second Quarter $18.19 $13.80 Third Quarter $17.93 $10.78 Fourth Quarter $15.49 $11.02  Dividend PolicyWe have not declared or paid any dividend s on our c ommon s tock since our initial public offering. We currently anticipate thatwe will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipatedeclaring or paying any dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock islimited by restrictions under the terms of our existing credit facilities. Any future determinations related to dividend policy will bemade at the discretion of our board of directors.Holders of RecordAt March 8, 2016, we had 44,913,928 shares of common stock outstanding held by approximately 301 stockhol ders of record ofour c ommon s tock. We believe t he actual number of stockholders is greater than this number of record holders, and includesstockholders who are beneficial owners, but whose shares are held in “street” name by brokers and other nominees. This numberof holders of record also does not include stockholders whose shares may be held in trust by other entities.Stock Performance GraphThis graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposesof Section 18 of the Securities Exchange Act of 1934, as amended , or the Exchange Act, or otherwise subject to the liabilitiesunder that Section, and shall not be deemed to be incorporated by reference into any filing of Amphastar Pharmaceuticals, Inc.under the Securities Act of 1933, as amended, or the Exchange Act.The following graph illustrates a comparison of the total cumulative stockholder return on our common stock since June 25, 2014, which is the date our   common stock first began trading on the NASDAQ Global Select Market, with   the cumulativestockholder return since May 31, 2014 on two indices: the NASDAQ Composite Index and the NASDAQ Pharmaceutical Index.    The graph assumes an initial investment of $100 on June 25, 2014 in our common stock and on May 31, 2014 in the stockscomprising each index. It also assumes   reinvestment of dividends, if any. Historical67 Table of Contentsstockholder return shown is not necessarily indicative of future performance, and we do not make or endorse any   predictions asto future stockholder returns.Issuer Purchases of Equity Securities D uring the Quarter E nded December 31, 201 5 The table below provides information with respect to repurchases of our common stock.              Total Number of Shares Maximum Number of     Average Purchased as Part of Shares that May Yet Be   Total Number of Shares Price Paid Publicly Announced Plans Purchased Under the Plans Period Purchased  per Share or Programs or Programs October 1 – October 31, 2015 152,800 $11.39 152,800 — November 1 – November 30, 2015 118,600  13.02 118,600 — December 1 – December 31, 2015 60,579  14.57 60,579 — (1)During the fourth quarter of 2015, we repurchased shares of our common stock as part of the share buyback programs authorized by our Board ofDirectors on November 6, 2014 and November 10, 2015.Recent Sales of Unregistered SecuritiesThere were no sales of unregistered securities during fiscal 2015 other than transactions previously reported in a Quarterly Reporton Form 10-Q or a Current Report on Form 8-K.  68 (1)Table of ContentsSecurities Authorized for Issuance Under Equity Compensation PlansSee Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” forinformation regarding securities authorized for issuance.Item 6. Selected Financial Data.The following table sets forth selected financial data as of and for the periods indicated. The selected consolidated statements ofoperations data for fiscal 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 arederived from our audited financial statements appearing in Item 8, “Financial Statements and Supplementary Data,” of thisAnnual Report on Form 10-K. The selected consolidated statements of operations data for fiscal 2012 and 2011 and theconsolidated balance sheet data as of December 31, 2013, 2012 and 2011 are derived from audited financial statements notincluded in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected inthe future.  The data presented below should be read in conjunction with our consolidated financial statements, the notes to our consolidatedfinancial statements and Item 7 “Management’s Discussion and Analysis of Financial Condition and R esults of Operations.”   Year Ended December 31,   2015 2014 2013 2012 2011   (in thousands, except per share data) Consolidated Statements of Operations Data:                Net revenues $251,519 $210,461 $229,681 $204,323 $118,356 Cost of revenues  174,172  159,205  142,725  114,020  90,252 Gross profit  77,347  51,256  86,956  90,303  28,104 Operating expenses:                Selling, distribution and marketing  5,470  5,564  5,349  4,426  4,100 General and administrative  41,504  34,809  30,972  27,223  26,433 Research and development  37,065  28,427  33,019  31,163  31,049 Impairment of long-lived assets  206  439  126  2,094  67 Total operating expenses  84,245  69,239  69,466  64,906  61,649 Income (loss) from operations  (6,898)  (17,983)  17,490  25,397  (33,545) Non-operating income (expense):                Interest income  315  243  187  242  401 Interest expense  (987)  (609)  (958)  (784)  (584) Other income (expense), net  (2,794)  201  508  1,023  1,841 Total non-operating income (expense)  (3,466)  (165)  (263)  481  1,658 Income (loss) before income taxes  (10,364)  (18,148)  17,227  25,878  (31,887) Income tax expense (benefit)  (7,577)  (7,449)  5,365  7,784  (39,639) Net income (loss) $(2,787) $(10,699) $11,862 $18,094 $7,752 Net income (loss) per common share:                Basic $(0.06) $(0.25) $0.31 $0.47 $0.20 Diluted $(0.06) $(0.25) $0.31 $0.46 $0.20 Weighted-average shares used to compute net income (loss)per common share:                Basic  44,961  41,957  38,712  38,580  38,513 Diluted  44,961  41,957  38,883  38,940  38,919        69 Table of Contents   December 31,   2015 2014 2013 2012 2011   (in thousands) Consolidated Balance Sheet Data:                Cash, cash equivalents, restricted cash and short-terminvestments $67,359 $69,323 $54,912 $52,101 $56,233 Working capital  115,979  135,401  107,569  105,615  92,683 Total assets  390,136  389,370  338,748  317,477  282,174 Long-term debt and capital leases, including current portion  41,099  43,700  32,173  38,002  14,167 Retained earnings  60,323  63,110  73,809  61,947  43,853 Total stockholders’ equity  295,510  281,860  251,545  233,439  208,518   70 Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following is a discussion and analysis of the consolidated operating results, financial condition, liquidity and cash flows ofour company as of and for the periods presented below. The following discussion and analysis should be read in conjunction withthe audited consolidated financial statements and the related notes thereto included in Item 8 under the heading “FinancialStatements and Supplementary Data . ” This discussion contains forward-looking statements that are based on the beliefs of ourmanagement, as well as assumptions made by, and information currently available to, our management. Actual results coulddiffer materially from those discussed in or implied by forward-looking statements as a result of various factors, including thosediscussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled “Risk Factors.”OverviewWe are a specialty pharmaceutical company that focuses primarily on developing, manufacturing, marketing and sellingtechnically-challenging generic and proprietary injectable, inhalation, and intranasal products. Additionally, in 2014, wecommenced sales of insulin API products. We currently manufacture and sell 18 products including Amphadase , which we re-launched in the fourth quarter of 2015. Additionally, we are developing a portfolio of 12 generic abbreviated new drugapplications, or ANDAs, three generic biosimilar and six proprietary injectable and inhalation product candidates.Our largest product by net revenues is currently enoxaparin sodium injection, the generic equivalent of Sanofi S.A.’s Lovenox .Enoxaparin is a difficult to manufacture injectable form of low molecular weight heparin that is used as an anticoagulant and isindicated for multiple indications, including the prevention and treatment of deep vein thrombosis.W e have agreements with established group purchasing organizations and wholesaler network s to distribute enoxaparin, whichis marketed under our own label for the hospital and clinic market .   For the U.S. retail market , we have an agreement withAllergan plc , or A llergan , to distribute enoxaparin, which is marketed under Actavis’ label.In June 2015, we received approval of our new drug application, or NDA, supplement for Amphadase . This marks the firstapproved starting material from ANP and signifies that our facility located in Nanjing, China has been qualified by the U.S. Foodand Drug Administration, or FDA. We re-launched Amphadase in the fourth quarter of 2015. Amphadase is competing in thehyaluronidase market and is used for the dispersion and absorption of other injected drugs . Our pipeline of 21 generic and proprietary product candidates is in various stages of development and target s a variety ofindications. With respect to these product candidates, we have three ANDAs and one NDA on file with the FDA.In March 2016, we acquired fourteen ANDAs, representing eleven different injectable chemical entities from HikmaPharmaceuticals PLC. We plan to transfer the product candidates to our facilities in California, which will require FDA approvalbefore the product candidates can be launched.To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products andtechnologies. These acquisitions collectively have strengthened our core injectable and inhalation product technologyinfrastructure by providing additional manufacturing, marketing and research and development capabilities including the abilityto manufacture raw materials, APIs and other components for our products.Business SegmentsOur performance will be assessed and resources will be allocated based on the following two reportable segments: (1) finishedpharmaceutical products and (2) active pharmaceutical ingredients, or API products. The finished pharmaceutical productssegment currently manufactures, markets and distributes enoxaparin, Cortrosyn ,   Amphadase ,   naloxone, lidocaine jelly aswell as various other critic al and non-critical care drugs. The API segment currently manufactures and distributes recombinanthuman insulin and porcine insulin.   Information reported herein is consistent with how it is reviewed and evaluated by our chiefoperating decision maker. Factors used to identify our segments include markets, customers and products .71 ® ® ® ® ® ® ® Table of ContentsFor more information regarding our segments, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes toConsolidated Financial Statements – Segment Reporting Information."Results of OperationsYear ended December 31, 201 5 c ompared to year ended December 31, 201 4Net revenues    Year Ended December 31,  Change    2015 2014 Dollars %    (in thousands) Net revenues             Finished pharmaceutical products             Enoxaparin  $84,502 $107,456 $(22,954) (21)%Other products   140,439  91,024  49,415 54%Total finished pharmaceutical products  $224,941 $198,480 $26,461 13%API   26,578  11,981  14,597 122%Total net revenues  $251,519 $210,461 $41,058 20%Cost of revenues             Finished pharmaceutical products  $150,795 $145,757 $5,038 3%API   23,377  13,448  9,929 74%Total cost of revenues  $174,172 $159,205 $14,967 9%Gross profit  $77,347 $51,256 $26,091 51%as % of net revenues   31%   24%       Net revenues were $2 51.5 million and $210.5 million for the years ended December 31, 2015 and 2014, respectively,representing an increase of $ 41.1 million, or 20 % . The increase was primarily due to an increase in sales of other finishedpharmaceutical products largely due to an increase in sales of naloxone to $38.6 million from $19.2 million, as a result ofincreased unit volumes at higher average prices. Additionally, we increased sales of phytonadione, epinephrine, lidocaine, andatropine, as a result of higher average prices. O ur insulin API business, which we acqu ired from Merck in April 2014, hadincrease d sales of recombinant human insulin , or RHI and porcine insulin by $1 4 . 6 million due to sales of RHI to MannKind.This was partially offset by a decrease of s ales of enoxaparin , which decreased $23.0 million to $84.5 million on higher unitvolumes at lower average selling prices. We expect that the declines in the average selling price of enoxaparin will continue and that unit volume will decline in the nearterm as an additional competitor, Teva, launched a competing enoxaparin product in February 2015. We believe this trend will bepartially offset by pricing increases on several other finished pharmaceutical products. Net revenues would also be impacted ifsales of our products were affected by any manufacturing or production issues, supply chain interruptions or unexpectedregulatory issues. Although quarterly sales may fluctuate, we anticipate that sales of insulin API will de crease due to reduced sales of RHI toMannKind. In addition, m ost of our API sales are denominated in Euros, and the decline in the value of the Euro versus the dollarcompared to 2014 has had , and will continue to have , a negative impact on API sales revenues in the near term.     Cost of revenues Cost of revenues was $174.2 million and $159.2 million for the years ended December 31, 2015 and 2014, respectively,representing an increase of $15.0 million, or 9%. The increase was primarily due to an increase in the overall cost of revenue forthe API business , which we acquired in April 2014, as a result of a full year of sales . This was partially offset by a decrease inaverage cost per unit of enoxaparin. Additionally, lower average heparin material costs contributed to the improvement in grossmargins. Overall, t he cost of revenues as a percentage of revenues decreased to 69 % from 7 6 % due to higher average prices ofseveral finished pharmaceutical products.    72 Table of Contents Declining prices and unit volume of enoxaparin will put additional downward pressure on gross margins, but we believe this trendwill be partially offset by increases in prices of several other finished pharmaceutical products. As a result, gross margin isexpected to remain variable depending on revenue mix. Selling, distribution and marketing, and general and administrative    Year Ended December 31,  Change    2015 2014 Dollars %    (in thousands) Selling, distribution, and marketing     $5,470    $5,564    $(94)    (2)%General and administrative   41,504  34,809  6,695 19%Impairment of long-lived assets   206  439  (233) (53)% General and administrative expenses were $41. 5 million and $34.8 million for the years ended December 31, 2015 and 2014,respectively, representing an increase of $6. 7 million, or 1 9 %. The increase was primarily due to a   $3. 3 million   settlement ofour California employment litigation as well as an increase of $1.3 million, primarily related to cost s associated with ourcompliance with public company reporting obligations . Additionally, the inclusion of a full year of expenses generated at ourFrench subsidiary, AFP, which we acquired in April 2014 contributed to the increase .     We expect general and administrative expenses will increase on an annual basis due to costs associated with compliance withpublic company reporting obligations. Research and development    Year Ended December 31,  Change    2015 2014 Dollars %    (in thousands) Research and development     $37,065    $28,427    $8,638    30% Research and development expenses were $37.1 million and $28.4 million for the years ended December 31, 2015 and 2014,respectively, representing an increase of $8. 6 million, or 30%. This increase was primarily due to an increase of $3.5 million inclinical trial expense, related to our intranasal naloxone product candidate and to our generic pipeline , as well as an increase of$2. 9 million for pre-launch inventory and purchases of materials and other research and development supplies, relating to theapproval of Amphadase ,   which we re-launched in October 2015 , as well as other costs relating to the development of ourintranasal naloxone product candidate.     Research and development costs consist primarily of costs associated with the research and development of our productcandidates, such as salaries and other personnel ‑related expenses for employees involved with research and developmentactivities, manufacturing pre ‑launch inventory, clinical trials, FDA fees, testing, operating and lab suppl ies , depreciation andamortization and other related expenses. We expense research and development costs as incurred.We have made, and expect to continue to make, substantial investments in research and development to expand our productportfolio and grow our business. These costs will fluctuate significantly from quarter to quarter based on the timing of variousclinical trials, the pre-launch costs associated with new products, and FDA filing fees. As we undertake new and challengingresearch and development projects, we anticipate that the associated annual expenses will increase significantly over the nextseveral years. 73 ® Table of ContentsThe following table sets forth our research and development expenses for the years ended December 31, 201 5 and 201 4 :    Year Ended December 31,  Change    2015 2014 Dollars %    (in thousands) Salaries and personnel-related expenses  $14,380 $11,283 $3,097 27%Pre-launch inventory   822  1,018  (196) (19)%Clinical trials   5,441  1,915  3,526 184%FDA fees   313   —  313 N/A Testing, operating and lab supplies   9,577  6,511  3,066 47%Depreciation   3,795  3,725  70 2%Other expenses   2,737  3,975  (1,238) (31)%Total research and development expenses  $37,065 $28,427 $8,638 30% Provision for income tax benefit    Year Ended December 31,  Change    2015 2014 Dollars %    (in thousands) Income tax benefit  $(7,577) $(7,449) $128 2%Effective tax rate   73% 41%      Provision for income tax benefit was $ 7. 6 million and $7.4 million for the years ended December 31, 2015 and 2014,respectively, representing a n   in crease in income tax benefit of $ 0. 2 million, or 2 %. Year ended December 31, 201 4 c ompared to year ended December 31, 201 3Net revenues    Year Ended December 31,  Change    2014 2013 Dollars %    (in thousands) Net revenues             Finished pharmaceutical products             Enoxaparin  $107,456 $145,923 $(38,467) (26)%Other products   91,024  83,758  7,266 9%Total finished pharmaceutical products  $198,480 $229,681 $(31,201) (14)%API   11,981   —  11,981 N/A Total net revenues  $210,461 $229,681 $(19,220) (8)%Cost of revenues             Finished pharmaceutical products  $145,757 $142,725 $3,032 2%API   13,448   —  13,448 N/A Total cost of revenues  $159,205 $142,725 $16,480 12%Gross profit  $51,256 $86,956 $(35,700) (41)%as % of net revenues   24%   38%        Net revenues were $210. 5 million and $229.7 million for the years ended December 31, 2014 and 2013, respectively,representing a decrease of $19.2 million, or 8%.   The decrease is primarily due to lower sales of enox a parin and Cortrosyn .  Total enoxaparin and Cortrosyn sales decreased $38.5 million and $2.5 million, respectively, due to lower average prices andlower unit sales. This was partially offset by sales of n aloxone and other critical care products as a result of both an increase inunit sales and higher average price s. Additionally, during fiscal 2014, we commenced sales of recombinant human insulin andporcine insulin from our insulin business, which we acquired from Merck in April 2014 .74 ® ® Table of ContentsCost of revenuesCost of revenues was  $ 159.2 million and $142.7 million for the years ended December 31, 2014 and 2013, respectively,representing an increase of $ 16.5 million, or 1 2%. The increase is primarily due to the overall cost of revenue at AFP of $13.4million, relating to the cost of sales of our insulin products. We added headcount at AFP, during the year, to meet the additionalplanned sales quantities to MannKind. The associated expenses resulted in a negative gross margin for the AFP business. The costof revenues as a percentage of revenues, increased to 76% from 62%. This increase as a percentage of revenues was due to lowerpricing on enoxaparin and Cortrosyn .Selling, distribution and marketing, general and administrative, and impairment of long-lived assets    Year Ended December 31, Change       2014 2013 Dollars %    (in thousands) Selling, distribution, and marketing  $5,564    $5,349 $215    4%General and administrative   34,809  30,972  3,837 12%Impairment of long-lived assets   439  126  313 248% General and administrative expenses were $34.8 million and $31.0 million for the year s ended December 31, 2014 and 2013,respectively, representing an increase of $ 3.8 million, or 1 2%. The increase was primarily due to the inclusion of expensesgenerated at our French subsidiary, AFP, which we acquired in April 2014, and an increase in corporate compensation expensesincluding share -based compensation expense .Research and development    Year Ended December 31,  Change    2014 2013 Dollars %    (in thousands) Research and development  $28,427 $33,019 $(4,592)    (14)% Research and development expenses were $28.4 million and $33.0 million for the year s ended December 31, 2014 and 2013,respectively, representing a decrease of $4.6 million, or 14%. The decrease is primarily due to a decrease in submission fees paidto the FDA during the year ended December 31, 2014 and a decrease in spending on materials and other research anddevelopment supplies. This decrease was partially offset by an increase in clinical trials expense. The following table sets forth our research and development expenses for the years ended December 31, 201 4 and 201 3 :    Year Ended December 31,  Change    2014 2013 Dollars %    (in thousands) Salaries and personnel-related expenses  $11,283 $9,703 $1,580 16%Pre-launch inventory   1,018  3,439  (2,421) (70)%Clinical trials   1,915  41  1,874 4,571%FDA fees    —  4,169  (4,169) (100)%Testing, operating and lab supplies   6,511  8,824  (2,313) (26)%Depreciation   3,725  3,242  483 15%Other expenses   3,975  3,601  374 10%Total research and development expenses  $28,427 $33,019 $(4,592) (14)% 75 ® Table of ContentsP rovision for income tax expense (benefit)    Year Ended December 31,  Change    2014 2013 Dollars %    (in thousands) Income tax expense (benefit)  $(7,449) $5,365 $(12,814) (239)%Effective tax rate   41% 31%      Income tax benefit was $ 7.4 million for the year ended December 31, 2014 compared to an income tax expense of $5.4 millionfor the year ended December 31, 2013, representing a decrease in income tax expense of $12. 8 million, or 2 39%. The decreasein income tax expense is primarily related to the pre-tax loss that occurred during the year ended December 31, 2014.Liquidity and Capital ResourcesCash Requirements and SourcesWe need capital resources to maintain and expand our business.  We expect our cash requirements to increase significantly in theforeseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our currentdevelopment ‑stage product candidates and pursue strategic acquisitions of businesses or assets. Our future capital expendituresinclude projects to upgrade, expand and improve our manufacturing facilities in the United States, China and France. Our cashobligations include the principal and interest payments due on our existing loans and lease payments, as described below andthroughout this Annual Report on Form 10-K. We believe that our cash reserves, operating cash flows, and borrowing availabilityunder our credit facilities will be sufficient to fund our operations for the next 12 months. We expect additional cash flows to begenerated in the longer term from future product introductions, although there can be no assurance as to the receipt of regulatoryapproval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy orultimately unsuccessful. We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregate of$250 million of our common stock, preferred stock, depositary shares, warrants, units, or debt securities. If we require or elect toseek additional capital through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to usor at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of suchsecurities will result in dilution to our stockholders. If we are required and unable to raise additional capital when desired, ourbusiness, operating results and financial condition may be adversely affected. Working capital decreased $19. 4 million to $11 6.0 million at December 31, 2015 compared to $135.4 million at December 31,2014. The decrease in working capital was primarily due to an accounting standard update, whereby, all deferred tax asset andliabilities are classified as long-term on the balance sheet. We have elected early adoption and have applied the guidanceprospectively, therefore prior periods were not adjusted. Additionally, the decrease in working capital was due to the payments onlong-term debt of $9.0 million and capital expenditures of $16.0 million, which was partially offset by cash in-flows fromoperations of $1 0 . 7 million and cash provided by option exercises of $13. 5 million.76 Table of ContentsCash Flows from OperationsThe following table summarizes our cash flows used in operating, investing, and financing activities for the years endedDecember 31, 201 5 , 201 4 and 201 3 .    Year Ended December 31,   2015 2014 2013    (in thousands) Statement of Cash Flow Data:           Net cash provided by (used in)           Operating activities  $10,681 $21,052 $31,042 Investing activities   (16,925)  (39,773)  (18,298) Financing activities   2,237  32,117  (9,370) Effect of exchange rate changes on cash   2,253  845   — Net increase in cash and cash equivalents  $(1,754) $14,241 $3,374  Sources and Use of CashOperating Activities Net cash provided by operating activities was $1 0 . 7 million for the year ended December 31, 2015, which included a net loss of$ 2.8 million. Non-cash items are comprised of $13.3 million of depreciation and amortization, and $12.8 million of share-basedcompensation expense. This was partially offset by a change of $5. 1 million in operating assets and liabilities and a n  $ 8 .0million change in deferred taxes and other tax related items. Investing ActivitiesNet cash used in investing activities of $16.9 million for the year ended December 31, 2015 was primarily related to $16.0 millionin purchases of property, machinery, and equipment, including the associated capitalized labor and interest on self-constructedassets. Additionally, $1.1 million in deposits were made for machinery and equipment. Financing Activitie sNet cash provided by financing activities of $2.2 million for the year ended December 31, 2015 was primarily related to $6.8million in additional borrowings and $13. 5 million from proceeds of stock options exercised. This was partially offset by $10. 5million relating to the repurchase of our common stock and $9.0 million in principal payments on our long-term debt. Debt and Borrowing CapacityOur outstanding debt obligations are summarized as follows:    December 31,       2015 2014 change    (in thousands) Short-term debt and current portion of long-term debt  $10,934 $7,594 $3,340 Long-term debt   30,165  36,106  (5,941) Total debt  $41,099 $43,700 $(2,601)  As of December 31, 2015, we had $30.0 million in unused borrowing capacity under revolving lines of credit with Cathay Bankand East West Bank.77 Table of ContentsIndebtednessLine of Credit Facility — Due March 2016In March 2012, we entered into a $10.0 million line of credit facility with East West Bank. Borrowings under the facility aresecured by inventory and accounts receivable. Borrowings under the facility bear interest at the prime rate as published by TheWall Street Journal . This facility was to mature in July 2014. In April 2014, we extended the maturity date to March 2016 .   Asof December 31, 2015, we did not have any amounts outstanding under this facility.Revolving L ine of Credit — Due May 2016In April 2012, we entered into a $20.0 million revolving line of credit facility with Cathay Bank. Borrowings under the facilityare secured by inventory, accounts receivables, and intangibles held by us. The facility bears interest at the prime rate aspublished by The Wall Street Journal with a minimum interest rate of 4.00%. This revolving line of credit was to mature in May2014. In April 2014, we modified the facility to extend the maturity date to May 2016. As of December 31, 2015, we did not haveany amounts outstanding under this facility.F inancial Covenants U nder Lines of CreditAt December 31, 2015, we were in compliance with our debt covenants, which include a minimum current ratio, minimum debtservice coverage, minimum tangible net worth, and maximum debt-to-effective-tangible-net-worth ratio, computed on aconsolidated basis in some instances and on a separate-company basis in others. At December 31, 2014, we were not incompliance with two of our financial covenants with Cathay Bank. The first one requiring a fixed charge coverage ratio of 1.2 to1.0, or greater, and the second one required a minimum debt service coverage ratio of 1.5 to 1.0, or greater. On March 13, 2015,we obtained waivers of these debt covenants for the period ending December 31, 2014.  Weighted ‑Average Interest Rates Under Lines of CreditThe weighted ‑average interest rates on lines of credit as of December 31, 2015 and 2014 were 3.8% and 3.6%, respectively.Acquisition Loan with Cathay Bank — Due April 2019On April 22, 2014, in conjunction with our acquisition of Merck’s API manufacturing business in É ragny ‑sur ‑Epte, France, weentered into a secured term loan with Cathay Bank as lender. The principal amount of the loan is $21.9 million and bears avariable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 4.00%. Beginningon June 1, 2014 and through the maturity date, April 22, 2019, we must make monthly payments of principal and interest equal tothe then outstanding amount of the loan amortized over a 120 ‑month period. On April 22, 2019, all amounts outstanding underthe loan become due and payable, which would be approximately $12.0 million based upon an interest rate of 4.00%. The loan issecured by 65% of the issued and outstanding shares of stock in Amphastar France Pharmaceuticals S . A . S . , or AFP, asubsidiary we established in France in order to facilitate the acquisition, and certain assets of ours, including accounts receivable,inventory, certain investment property, goods, deposit accounts and general intangibles but not including our equipment and realproperty.The loan includes customary restrictions on, among other things, our ability to incur additional indebtedness, pay dividends incash or make other distributions in cash, make certain investments, acquire other companies, create liens, sell assets and makeloans. The loan also contains customary financial covenants, computed on a consolidated basis, which include a minimumtangible net worth, a maximum total liabilities to tangible net worth ratio, a minimum current ratio, a minimum profitability and aminimum fixed charge coverage ratio.The loan also includes customary events of default, the occurrence and continuation of any of which provide Cathay Bank theright to exercise remedies against us and the collateral securing the loan. These events of default include, among other things, ourfailure to pay any amounts due under the loan, our insolvency, the occurrence of any default under certain other indebtedness ormaterial agreements and a final judgment against us that is not discharged in 30 ‑days.78 Table of ContentsMerck Payment Obligation — Due December 2017On April 30, 2014, in conjunction with the Merck API Transaction, we entered into a   commitment obligation with Merck, in theprincipal amount of €11.6 million, or $16.0 million, subject to currency exchange fluctuations. The terms of the purchase priceinclude annual payments over four years and bear a fixed interest rate of 3.00%. The final payment to Merck relating to thisobligation is due December 2017. In December 2015 and 2014, we made a principal payment of €3.2 million, or $3.5 million and€4.9 million, or $6.0 million, respectively.As of December 31, 2015, the payment obligation had a book value of €3.6 million, or $3.9 million, which approximates fairvalue. The fair value of the payment obligation was determined by using the interest rate associated with our acquisition loan withCathay Bank that bears a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interestrate of 4.00%. The fair value of the debt obligation is not re-measured on a recurring basis and the variable interest rate is deemedto be a Level 2 input for measuring fair value.Mortgage Payable with East West Bank — Due January 2016 In December 2010, we refinanced an existing mortgage term loan with East West Bank, which had a principal balanceoutstanding of $4.5 million at December 31, 2010. The loan was payable in monthly installments with a final balloon payment of$3.8 million. The loan was secured by one of the buildings at our Rancho Cucamonga, California, headquarters complex, as wellas one of our buildings at our Chino, California, complex. The loan had a variable interest rate at the prime rate as published byThe Wall Street Journal, with a minimum interest rate of 5.00%, and matured in January 2016. Subsequent to our year-end, we refinanced the existing mortgage term loan with East West Bank in January 2016, which had aprincipal balance outstanding of $3.7 million at December 31, 2015. The loan is payable in monthly installments with a finalballoon payment of $3.3 million. The loan is secured by one of the buildings at our Rancho Cucamonga, California headquarterscomplex. The loan has a variable interest rate at the prime rate as published by The Wall Street Journal . Subsequently, weentered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest payment overthe life of the loan without the exchange of the underlying notional debt amount. The loan bears interest at a fixed rate of 4.39%,and matures in February 2021. Critical Accounting PoliciesWe prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP.The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual resultscould differ from those estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from periodto period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differencesbetween these estimates and actual results, our financial condition and results of operations will be affected. We base ourestimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate theseestimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies, which we discussfurther below. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financialstatements, we believe that the following accounting policies are critical to the process of making significant judgments andestimates in the preparation of our audited consolidated financial statements.Revenue RecognitionOur net revenues consist principally of revenues generated from the sale of our pharmaceutical products and profit sharingrevenues received under our profit sharing agreement with A llergan . We also generate a small amount of revenues from contractmanufacturing services. Generally, we recognize revenues at the time of product delivery to our customers. In some cases,revenues are recognized at the time of shipment when stipulated by the terms of the sale agreements. We also record profit‑sharing revenues , which are included in net revenues, from a distribution agreement with A llergan at the time A llergan sellsthe products to its customers. Revenues derived from contract manufacturing79 Table of Contentsservices are recognized when third ‑party products are shipped to customers, after the customer has accepted test samples of theproducts to be shipped.We do not recognize product revenues unless the following fundamental criteria are met: (i) persuasive evidence of anarrangement exists, (ii) transfer of title has occurred, (iii) the price to the customer is fixed or determinable and (iv) collection isreasonably assured. Furthermore, we do not recognize revenues until all customer acceptance requirements have been met. Weestimate and record reductions to revenues for early ‑payment discounts, product returns, administrative and management fees,rebates and pricing adjustments, such as wholesaler chargebacks, in the same period that the related revenues are recorded.If actual future payments for the discounts, returns, fees, rebates and chargebacks exceed the estimates we made at the time ofsale, our financial position, results of operations and cash flows would be negatively impacted. As discussed under “Accrual forProduct Returns” below, we are generally obligated to accept from our customers the return of pharmaceuticals that have or willsoon reach their expiration dates. We establish reserves for such amounts based on historical experience and other informationavailable at the time of sale, but the actual returns will not occur until several years after the sale. Although we believe that ourestimates and assumptions are reasonable as of the date when made, actual results may differ significantly from these estimates.Our financial position, results of operations and cash flows may be materially and negatively impacted if actual returns exceedour estimated allowances for returns.We establish allowances for estimated chargebacks and product returns based on a number of qualitative and quantitative factors,including:·contract pricing and return terms of our agreements with customers;·wholesaler inventory levels and turnover;·historical chargeback and product return rates;·shelf lives of our products, which is generally two years, as is the case with enoxaparin;·direct communication with customers;·anticipated introduction of competitive products or authorized generics; and·anticipated pricing strategy changes by us and/or our competitors .Provision for Wholesaler ChargebacksThe provision for chargebacks is a significant estimate used in the recognition of revenues. As part of our sales terms withwholesale customers, we agree to reimburse wholesalers for differences between the wholesale prices, at which we sell ourproducts to wholesalers, and the lower prices at which the products are resold under our various contractual arrangements withthird parties such as hospitals and group purchasing organizations. We estimate chargebacks at the time of sale to wholesalersbased on wholesaler inventory stocking levels, historic chargeback rates and current contract pricing.80 Table of ContentsThe provision for chargebacks is reflected in net revenues and a reduction to accounts receivable. The following table is ananalysis of our chargeback provision:   Year Ended   December 31,   2015 2014   (in thousands) Beginning balance $11,872 $18,104 Provision related to sales made in the current period  162,238  156,235 Credits issued to third parties  (158,893)  (162,467) Ending balance $15,217 $11,872  Changes in the chargeback provision from period to period are primarily dependent on our sales to wholesalers, the level ofinventory held at the wholesalers and the wholesalers’ customer mix. The approach that we use to estimate chargebacks has beenconsistently applied for all periods presented. Variations in estimates have been historically small. We continually monitor theprovision for chargebacks and make adjustments when we believe that the actual chargebacks may differ from the estimates. Thesettlement of chargebacks generally occurs within 30 days after the sale to wholesalers.Accrual for Product ReturnsWe offer most customers the right to return qualified excess or expired inventory for partial credit; however, products sold to Allergan are non ‑returnable. Our product returns primarily consist of the returns of expired products from sales made in priorperiods. Returned products cannot be resold. At the time product revenues are recognized, we record an accrual for estimatedreturns. The accrual is based, in part, upon the historical relationship of product returns to sales and customer contract terms. Wealso assess other factors that could affect product returns including market conditions, product obsolescence and the introductionof new competition. Although these factors do not normally give our customers the right to return products outside of the regularreturn policy, we realize that such factors could ultimately lead to increased returns. We analyze these situations on a case ‑by‑case basis and make adjustments to the product return reserve as appropriate.When we do not have specific historical experience with actual returns for a product, we consider other available information torecord a reasonable product return reserve. If we already sell products that are similar to a newly launched product, we estimatethe new product return rate using historical experience of similar products. If there are similar products on the market producedby other companies, we may also consider the additional relevant industry data in calculating our estimate. The criteria used tomake the determination of whether a new product is similar to existing products includes whether it: (i) is used for the treatmentof a similar type of disease or indication, (ii) has a comparable shelf life, (iii) has similar frequency of dosing, (iv) has similartypes of customers, (v) is distributed in a similar manner and (vi) has similar rights of return and other comparable salesincentives. We also consider whether we have the ability to monitor inventory levels in our distribution channels to determine theunderlying patient demand for a new product. We analyze the product’s sell ‑through cycle based on wholesaler chargebackclaims and customers’ re ‑ordering patterns to determine whether the estimated product return rate is reasonable. Additionally, weconsider factors such as size and maturity of the market prior to launch and the introduction of additional competition. If theavailable information is not sufficient to record a reasonable product return accrual, revenues from the sales of the new productwould be deferred until the product is consumed by the end customer or rights of return granted under the return policy haveexpired. Historically, we have not deferred revenues on any of our products.On each balance sheet date, we classify that portion of our accrual for product returns that is attributable to products that areeligible for return within 12 months following the balance sheet date as a current obligation and the remainder as a long ‑termobligation.81 Table of ContentsThe provision for product returns is reflected in net revenues. The following table is an analysis of our product return liability:   Year Ended   December 31,   2015 2014   (in thousands) Beginning balance $2,408 $4,592 Provision for product returns  1,675  (714) Credits issued to third parties  (1,462)  (1,470) Ending balance $2,621 $2,408  For the years ended December 31, 201 5 and 201 4 , our aggregate product return rate was 1.1% and 1.1% of qualified sales,respectively.InventoryInventories, net of allowances, are stated at the lower of cost or market. Cost is determined by the first ‑in, first ‑out method.Inventories are reviewed periodically for slow ‑moving or obsolete status. We adjust our inventory to reflect situations in whichthe cost of inventory is not expected to be recovered. We would record a reserve to adjust inventory to its net realizable value:(i) if a launch of a new product is delayed and inventory may not be fully utilized and could be subject to impairment, (ii) when aproduct is close to expiration and not expected to be sold, (iii) when a product has reached its expiration date, or (iv) when aproduct is not expected to be sellable. In determining the reserves for these products, we consider factors such as the amount ofinventory on hand and its remaining shelf life and current and expected market conditions, including management forecasts andlevels of competition.Impairment of Intangibles and Long ‑Lived AssetsWe review long ‑lived assets and identifiable intangible assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Such events and circumstances include decisions by theFDA regarding evidence of effectiveness of proprietary drug candidates or bioequivalence (sameness) of our generic productcandidates as compared to the reference drug, communication with the regulatory agencies regarding the safety and efficacy ofour products under review, the use of the asset in current research and development projects, any potential alternative uses of theasset in other research and development projects in the short ‑to ‑medium term, clinical trial results and research and developmentportfolio management options. Determination of recoverability is based on an estimate of undiscounted future cash flowsresulting from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows is lessthan the carrying amount of the asset, further impairment analysis is performed. An impairment loss is measured as the amount bywhich the carrying amount exceeds the fair value of the assets (assets to be held and used) or fair value less cost to sell (assets tobe disposed of).Indefinite ‑lived intangibles, which include goodwill and the Primatene trademark acquired in June 2008, are tested forimpairment annually or more frequently if indicators of impairment are present. An impairment loss is recorded if the asset’s fairvalue is less than its carrying value. We also periodically review the Primatene trademark to determine if events andcircumstances continue to support an indefinite useful life. If the life is no longer indefinite, the asset is tested for impairment.The carrying value, after recognition of any impairment loss, is amortized over its remaining useful life.Since December 31, 2011 we are no longer allowed to distribute the CFC formulation of our Primatene Mist product related tothis intangible asset. However, we have developed a hydrofluoroalkane, or HFA, version of this product, which we plan to marketunder the same trade name. In 2013, we filed a new drug application, or NDA, for Primatene HFA.  In May 2014, we received acomplete response letter, or CRL, from the FDA, which requires additional non-clinical information, label revisions and follow-up studies (label comprehension, behavioral /human factors and actual use) to assess consumers’ ability to use the devicecorrectly to support approval of the product in the over-the-counter setting. We met with the FDA in October 2014 to discusspreliminary data results and to clarify the FDA requirements for further studies. We received further advice regarding ourongoing studies from the FDA in January 2016 and we are82 ® ® ® ® Table of Contentscurrently in the process of generating the remaining data required by the CRL and plan to submit an NDA a mendment that webelieve will address the FDA’s concerns. However, there can be no guarantee that any amendment to our NDA will result intimely approval of the product or approval at all.All of our impairments relate primarily to the write ‑off of certain manufacturing equipment related to abandoned projects. Sincewe periodically assess our product candidates and make changes to product development plans, we incur impairment chargesfrom time to time. These charges can fluctuate significantly from period to period.Deferred Income TaxesWe utilize the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based onthe temporary differences between the financial statements and tax basis of assets and liabilities using enacted tax rates. Avaluation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized. We have adoptedthe with ‑and ‑without methodology for determining when excess tax benefits from the exercise of share ‑based awards arerealized. Under the with ‑and ‑without methodology, current year operating loss deductions and prior year operating losscarryforwards are deemed to be utilized prior to the utilization of current year excess tax benefits from share ‑based awards.A number of years may elapse before an uncertain tax position for which we have established a tax reserve is audited and finallyresolved. The number of years for which we can be subject to audit varies depending on the tax jurisdiction. While it is oftendifficult to predict the final outcome or the timing of the resolution of an audit, we believe that our reserves for uncertain taxbenefits reflect the outcome of tax positions that is more likely than not to occur. The resolution of a matter could be recognizedas an adjustment to our provision for income taxes and our effective tax rate in the period of resolution, and may also require ause of cash.Share ‑Based CompensationOptions issued under our 20 1 5 Equity Incentive Award Plan, or the 20 15 Plan, are granted at prices equal to or greater than thefair value of the underlying shares on the date of grant and vest based on continuous service. The options have a contractual termof five to ten years and generally vest over a three ‑ to five ‑year period. The fair value of each option is amortized intocompensation expense on a straight ‑line basis between the grant date for the option and the vesting date. The awards of restrictedcommon stock such as restricted stock units, or R SUs , are valued at fair value on the date of grant. We use the Black ‑Scholesoption pricing model to determine the fair value of share ‑based awards. The Black ‑Scholes option pricing model has variousinputs such as the estimated common share price, the risk ‑free interest rate, volatility, expected life and dividend yield, all ofwhich are estimates. We used the risk free rate on U.S. Treasury securities at the time of grant for instruments with maturitiescommensurate with the expected term of the stock option. Our volatility estimate was based on a set of peer companies, since ourshares do not have sufficient trading history. Our dividend yield was assumed to be 0%, because we have no plans to paydividends. We also record share ‑based compensation expense net of expected forfeitures. The change of any of these inputscould significantly impact the determination of the fair value of our options and thus could significantly impact our results ofoperations. There are no significant awards with performance conditions and no awards with market conditions.Common Stock ValuationFor all equity grants prior to our initial public offering, w e were required to estimate the fair value of the common stockunderlying our share ‑based awards when performing the fair value calculations with the Black ‑Scholes option ‑pricing model.The fair values of the common stock underlying our share ‑based awards were determined by our board of directors, with inputfrom management and contemporaneous third ‑party valuations. We believe that our board of directors ha d the relevantexperience and expertise to determine the fair value of our common stock. As described below, the exercise price of our share‑based awards was determined by our board of directors based on a number of factors, including the most recent third ‑partyvaluation report as of the grant date.Given the absence of a public trading market of our common stock prior to our initial public offering , and in accordance with theAmerican Institute of Certified Public Accountants Practice Guide, Valuation of Privately ‑Held ‑Company83 Table of ContentsEquity Securities Issued as Compensation , our board of directors exercised reasonable judgment and considered numerousobjective and subjective factors to determine the best estimate of the fair value of our common stock .The dates of our valuation reports, which were prepared on a quarterly basis, were not always contemporaneous with the grantdates of our share ‑based awards. Therefore, in those cases where the report was not contemporaneous with the grant date of thestock based awards, we considered the amount of time between the valuation report date and the grant date to determine whetherto use the latest common stock valuation report for the purposes of determining the fair value of our common stock for financialreporting purposes. If share ‑based awards were granted in a short period of time preceding the date of a valuation report, weassessed the fair value of such share ‑based awards used for financial reporting purposes after considering the fair value reflectedin the subsequent valuation report and other facts and circumstances on the date of grant as discussed below. There weresignificant judgments and estimates inherent in these valuations, which included assumptions regarding our future operatingperformance, the time to completing an initial public offering or other liquidity event and the determinations of the appropriatevaluation methods to be applied.In valuing our common stock, our board of directors determined the equity value of our business using generally acceptedvaluation methodologies including discounted cash flow analysis and comparable public company analysis.Once calculated, the board determine d the midpoint of the results of the discounted cash flow and the market comp arableapproach and then weighted the two methodologies to determine an estimated enterprise value.Once an enterprise value was determined, we utilized the option pricing method, or OPM, to allocate the equity value to ourcommon stock. The OPM values each equity class by creating a series of call options on our equity value, with exercise pricesbased on the strike prices of derivatives. This method is generally preferred when future outcomes are difficult to predict anddissolution or liquidation is not imminent. The inability to readily sell shares of a company increases the owner’s exposure tochanging market conditions and increases the risk of ownership. Because of the lack of marketability and the resulting increasedrisk associated with ownership of a privately ‑held stock, an investor typically demands a higher return or yield in comparison toa similar but publicly ‑traded stock. An indication of the discount for lack of marketability can be developed using a put optionmodel. A put option model values what the illiquid security holder lacks, the ability to sell his or her shares. Theoretically, aholder of an illiquid security and a put option, and a holder of an identical, but liquid security, are in the same financial position.The put option model has the benefit of being company ‑specific (through the use of a company ‑specific volatility rate),verifiable and has relatively few inputs (risk free rate, term and volatility).JOBS Act Accounting ElectionUnder the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent tothe enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not toavail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new orrevised accounting standards as other public companies that are not emerging growth companies.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board, or FASB issued an accounting standards update that creates a singlesource of revenue guidance for companies in all industries. The new standard provides guidance for all revenue arising fromcontracts with customers and affects all entities that enter into contracts to provide goods or services to their customers, unless thecontracts are within the scope of other accounting standards. It also provides a model for the measurement and recognition ofgains and losses on the sale of certain nonfinancial assets. This guidance must be adopted using either a full retrospectiveapproach for all periods presented or a modified retrospective approach and will be effective for fiscal years beginning afterDecember 15, 201 7 , which will be our fiscal 201 8 . We have not yet evaluated the potential impact of adopting the guidance onour consolidated financial statements.In June 2014, the FASB issued an accounting standards update that requires a performance target that affects vesting of a share-based payment award and that could be achieved after the requisite service period to be treated as a performance84 Table of Contentscondition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award.Compensation cost should be recognized over the required service period, if it is probable that the performance target will beachieved. This guidance will be effective for fiscal years beginning after December 15, 2015, which will be our fiscal 2016, withearly adoption permitted. We do not expect the adoption of the guidance will have a material impact on our consolidated financialstatements.In August 2014, the FASB issued an accounting standards update that will require management to evaluate if there is substantialdoubt about our ability to continue as a going concern and, if so, to disclose this in both interim and annual reporting periods. This guidance will become effective for our annual filing for the period ending December 31, 2016 and interim periods thereafter,and allows for early adoption.  We do not expect the adoption of the guidance will have a material impact on our consolidatedfinancial statements.In July 2015, the FASB issued an accounting standards update which requires entities to measure most inventories at the lower ofcost and net realizable value, or NRV, thereby simplifying the current guidance under which an entity must measure inventory atthe lower of cost or market. Under the new guidance, inventory is measured at the lower of cost and net realizable value, whicheliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRVless a normal profit margin). The guidance defines NRV as the estimated selling prices in the ordinary course of business, lessreasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginningafter December 15, 2016, and interim periods therein. The standard will be effective for us during the first quarter of our fiscal201 7 .  Early application is permitted. The new guidance must be applied prospectively.  We do not believe the adoption of thisaccounting guidance will have a material impact on our consolidated financial statements and related disclosures. In November 2015, the FASB issued an accounting standards update the balance sheet classification of deferred taxes.  Underexisting standards, deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and net long-termasset or liability. To simplify presentation, the new guidance will require that all deferred tax assets and liabilities, along withrelated valuation allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will nowonly have one net long-term deferred tax asset or liability. The new guidance does not change the existing requirement thatprohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance iseffective for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The newguidance may be applied prospectively or retrospectively. We have elected to adopt the guidance early and apply the guidanceprospectively, therefore, prior periods were not retrospectively adjusted. The reclassification of our deferred tax assets andliabilities does not have any impact to our net income or cash flow, thus the adoption of the guidance does not have a materialimpact on our consolidated financial statements. In February 2016, the FASB issued accounting standards update that is aimed at making leasing activities more transparent andcomparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset andcorresponding lease liability, including leases currently accounted for as operating leases. This guidance will become effective forour interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periodsthereafter. Early adoption is permitted. We are currently evaluating the impact that the adoption of this guidance will have on ourconsolidated financial statements and related disclosures. Non-GAAP Financial Measures We report our financial results in accordance with accounting principles generally accepted in the United States, or GAAP.Agreements with Corporate PartnersDistribution Agreement with Allergan plc .In May 2005, we entered into an agreement to grant certain exclusive marketing rights for our enoxaparin product to AndrxPharmaceuticals, Inc., or Andrx, which generally extends to the U.S. retail pharmacy market. To obtain such85 Table of Contentsrights, Andrx made a non ‑refundable, upfront payment of $4.5 million to us upon execution of the agreement which wasclassified as deferred revenues . Under the agreement, we are paid a fixed cost per unit sold to Andrx and also receive apercentage between 50% and 55% of the gross profits from Andrx’s sales of the product in the U.S. retail pharmacy market. InNovember 2006, Watson Pharmaceuticals, Inc., or Watson, acquired Andrx and all of the rights and obligations associated withthe agreement. In January 2013, Watson adopted Actavis as its new global name. In March 2015, Actavis acquired Allergan plcand adopted Allergan plc as its new global name in June 2015. The agreement has a term that expires in January 2019 and can beextended by A llergan for an additional three years. The agreement may only be terminated prior to the end of the term by eitherparty in the case of a breach of contract or insolvency of the other party, by us if A llergan fails to purchase a minimum number ofunits and by A llergan if an infringement claim is made against A llergan .We manufacture our enoxaparin product for the retail market according to demand specifications of A llergan . Upon shipment ofenoxaparin to A llergan , we recognize product sales at an agreed transfer price and record the related cost of products sold. Basedon the terms of our distribution agreement with A llergan , we are entitled to a share of the ultimate profits based on the eventualnet revenue from enoxaparin sales by A llergan to the end user less the agreed transfer price originally paid to us by A llergan . Allergan provides us with a quarterly sales report that calculates our share of A llergan enoxaparin gross profit. We record our shareof A llergan gross profit as a component of net revenue.Supply Agreement with MannKind CorporationOn July 31, 2014, we entered into a supply agreement with MannKind Corporation, or MannKind, pursuant to which we willmanufacture for and supply to MannKind certain quantities of recombinant human insulin, or RHI , for use in MannKind’sproduct Afrezza . Under the terms of the supply agreement, we will be responsible for manufacturing the RHI in accordancewith MannKind’s specifications and agreed-upon quality standards. MannKind has agreed to purchase annual minimumquantities of RHI under the supply agreement of an aggregate amount of approximately €120.1 million, or approximately $ 146.0million, in cal endar years 2015 through 2019.MannKind paid a non-refundable reservation fee to us in the amount of €11.0 million, o r approximately $14.0 million upon entryinto the agreement.  Under the agreement, the non-refundable reservation fee was considered as partial payment for the purchasecommitment quantity for 2015. We classified the amount as deferred revenue.Unless earlier terminated, the term of the supply agreement expires on December 31, 2019 , and can be renewed for additional,successive two-year terms upon 12 months’ written notice given prior to the end of the initial term or any additional two-yearterm . MannKind and we each have customary termination rights, including termination for material breach that is not curedwithin a specific time frame or in the event of liquidation, bankruptcy, or insolvency of the other party. In addition, MannKindmay terminate the supply agreement upon two years’ prior written notice to us without cause or upon 30 days prior written noticeto us if a controlling regulatory authority withdraws approval for Afrezza ; provided, however, in the event of a terminationpursuant to either of these scenarios, the provisions of the supply agreement require MannKind to pay the full amount of allunpaid purchase commitments due over the initial term within 60 calendar days of the effective date of such termination. In January 2015, we entered into a supply option agreement with MannKind, pursuant to which MannKind will have the option topurchase RHI, for use in MannKind’s product Afrezza , in addition to the amounts specified in the July 2014 supply agreement.Under the agreement, MannKind has the option to purchase additional RHI in calendar years 2016 through 2019.  In the eventMannKind elects not to exercise its minimum annual purchase option for any year, MannKind shall pay us a capacity cancellationfee.By mutual agreement, MannKind did not purchase the full contractually ob ligated amount in 2015. The 2015 sales of RHI toMannKind were $ 20.8 million.   We are currently in discussions with MannKind regarding the timing of future purchases. InOctober 2015, MannKind informed us they were not going to exercise the option to purchase additional quantities of RHI for2016 under the option agreement.  Accordingly , MannKind paid us a capacity cancellation fee in 2015 for 2016. We recognizedthis payment as revenue in 2015.86 ® ® ® Table of ContentsCollaboration agreement with a medical device manufacturer We have entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be usedby us for one of our pipeline products. As of December 31, 2015, we have paid an upfront payment of $0.5 million and $0.4million in milestone payments under this agreement, which was classified as research and development expense. We are obligatedto pay up to an additional $1.7 million if certain milestones are met. If the medical device manufacturer is successful in thedevelopment of this drug delivery system and our pipeline products receive appropriate regulatory approval, we intend to enterinto a commercial supply agreement with such medical device manufacturer for a minimum purchase of 1.0 million units duringthe first 12 months. Contractual ObligationsSet forth below are our contractual payment obligations (including interest obligations but excluding intercompany obligations) asof December 31, 2015:               More      Less than       than Contractual Obligations  Total 1 year 1 - 3 years 3 - 5 years 5 years   (in thousands) Long-term debt  $45,169 $12,233 $10,888 $14,649 $7,399 Operating leases  10,197  3,028  4,932  2,237  — Capital leases  869  333  490  46  — Facility construction in Nanjing, China   15,000  —  15,000  —  — Purchase obligations   11,016  10,632  384  —  —   $82,251 $26,226 $31,694 $16,932 $7,399 (1)The table above excludes (i) our liability for uncertain tax position of $5.6 million because the timing of any related payments cannot be reasonablyestimated.(2)Long ‑term debt includes accrued and unpaid interest. As of December 31, 2015, the weighted average interest rate on our long ‑term debt was4.1%.(3)Obligation to develop a facility in Nanjing, China. Please see “— Investment in China” below for further discussion.(4)The purchase obligations principally relate to inventory and pharmaceutical manufacturing and laboratory equipment. We anticipate meeting thesepurchase obligations through a combination of cash on hand, future cash flows from operations and debt and lease facilities. We have made depositsrelated to equipment purchases on these obligations totaling $20.7 million as of December 31, 2015.   Additionally, $1.7 million relates to ourobligation pursuant to a collaboration agreement with a medical device manufacturer if certain milestones are met.I nvestment in ChinaWe entered into agreements with a Chinese governmental entity to acquire land ‑use rights to real property in Nanjing, China.Under the terms of these agreements, we are committed to invest capital in our wholly ‑owned subsidiary, Amphastar NanjingPharmaceuticals Co., Ltd., or ANP, and to develop these properties as an API manufacturing facility for our pipeline. Inconjunction with these agreements, ANP modified its business license on July 3, 2012, to increase its authorized capital. As ofDecember 31, 2015, we have invested approximately $49.0 million in ANP of its registered capital commitment of $61.0 million.We are committed to invest an additional $12.0 million in ANP by December 2017. This investment in ANP will result in cashbeing transferred from the U.S. parent company to ANP.Per these agreements, in January 2010 we acquired certain land ‑use rights with a carrying value of $1.2 million. In addition, wepurchased additional land ‑use rights in November 2012 for $ 1.3 million. We are committed to spend approximately$15.0 million in land development. The agreements require the construction of fixed assets on the property and specified atimetable for the construction of these fixed assets. The current pace of development of the property is behind the scheduledescribed in the purchase agreement and, per the purchase agreement, potential monetary penalties could result if thedevelopment is delayed or not completed in accordance with the guidelines stated in the purchase agreements.87 (1)(2)(3)(4)Table of ContentsOff ‑Balance Sheet ArrangementsWe do not have any relationships or financial partnerships with unconsolidated entities, such as entities often referred to asstructured finance or special purpose entities, which would have been established for the purpose of facilitating off ‑balance sheetarrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non‑exchange traded contracts.Government Regulation Our products and facilities are subject to regulation by a number of federal and state governmental agencies. The Food and DrugAdministration, or FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labelingof all of our products. The Drug Enforcement Administration, or DEA, maintains oversight over our products that are consideredcontrolled substances. From January 19 through January 22, 2015, our facility in Éragny-Sur-Epte, France was subject to an inspection by the FrenchNational Agency for Medicines and Health Products Safety (Agence nationale de sécurité du médicament et des produits desanté), or ANSM. The inspection included a review of current EU Good Manufacturing Practices, or EU-GMP for MedicinalProducts for Human and Veterinary Use (EU-GMP Part II for Active Substances) and Manufacture of Biological ActiveSubstances and Medicinal Products for Human Use (EU-GMP Annex 2). The inspections resulted in various observations issuedformally to the facility. We responded to those observations on March 13, 2015, with a minor follow up response on April 3,2015. We received acknowledgment from ANSM that our responses to the observations were satisfactorily addressed and wasissued a certificate of EU-GMP compliance from the Agency dated April 9, 2015 that is valid until January 2018. From July 22, 2015 through August 10, 2015, our IMS facility in South El Monte, CA was subject to an inspection by the FDA.The inspection included a review of our compliance with cGMP regulations and preapproval inspections for abbreviated new drugapplications currently being reviewed by the FDA. The inspections resulted in multiple observations on Form 483. We respondedto those observations on August 31, 2015. We believe that our responses to the Form 483 will satisfy the FDA and that nosignificant further actions will be necessary. From February 29, 2016 through March 4, 2016, our facility in Éragny-sur-Epte, France was subject to an inspection by the FDA.The inspection included a review of Quality Systems, Production Controls, Laboratory Controls, Material Management, andFacilities and Equipment Maintenance. The inspection resulted in multiple observations on Form 483. We plan to respond tothose observations by March 25, 2016. Item 7A. Quantitative and Qualitative Disclosures about Market Risk.The following discussion provides forward-looking quantitative and qualitative information about our potential exposure tomarket risk. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The riskof loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings. We are exposed tomarket risk for changes in the market values of our investments (Investment Risk), the impact of interest rate changes (InterestRate Risk), and the impact of foreign currency exchange changes (Foreign Currency Exchange Risk).Investment RiskWe regularly review the carrying value of o ur investments and identify and recognize losses, for income statement purposes ,when events and circumstances indicate that any declines in the fair values of such investments below our accounting basis areother than temporary. As of December 31, 201 5 , we did not have any such investments.As of December 31, 2015, we had $ 6.0 million   deposited in three banks located in China and $ 1.6 million deposited in onebank located in France. We also maintained $ 42.5 million in Money Market, Money Market Insured Deposit Account Service, orMMIDAS, and Insured Cash Sweep, or ICS, accounts as of December 31, 2015 .   The remaining amounts of our cash equivalentas of December 31, 2015 are in non-interest bearing accounts.88 Table of ContentsAs of December 31, 2014, we had $ 7. 4 million   deposited in three banks located in China and $ 8.0 million deposited in onebank located in France. We also maintained $43.0 million in Money Market, MMIDAS, and ICS, accounts as of December 31 ,2014. The remaining amounts of our cash equivalent as of December 31, 2014 are in non-interest bearing accounts.The MMIDAS accounts and ICS accounts allow us to distribute our funds among a network of depository institutions that are re‑allocated such that each deposit account is below the $250.0 thousand Federal Deposit Insurance Corporation, or FDIC, limit,thus providing greater FDIC insurance coverage for our overall cash balances. We have not experienced any losses in suchaccounts, nor do we believe we are exposed to any significant credit risk on our bank account balances.Interest Rate RiskOur primary exposure to market risk is interest ‑rate ‑sensitive investments and credit facilities, which are affected by changes inthe general level of U.S. interest rates. Due to the nature of our short-term investments, such as our certificates of deposit, webelieve that we are not subject to any material interest rate risk with respect to our short-term investments.As of December 31, 2015, we had $ 41.1 million in long-term debt a nd capital leases outstanding. Of this amount, $ 26.6 millionhad variable interest rates with a weighted-average interest rate of 4. 0 % at December 31, 2015. An increase in the indexunderlying these rates of 1% (100 basis points) would increase our annual interest expense on the variable-rate debt byapproximately $0.3 million per year. As of December 31, 2014, we had $43.7 million in long-term debt a nd capital leasesoutstanding. Of this amount, $30.0 million had variable interest rates with a weighted-average interest rate of 4.0% at December31, 2014. An increase in the index underlying these rates of 1% (100 basis points) would increase our annual interest expense onthe variable -rate debt by approximately $0.3 million per year . Foreign Currency Rate RiskOur products are primarily sold in U.S. domestic market, and for the years ended December 31 , 201 5 , 201 4 ,   and 201 3 ,  foreign sales were minimal. Therefore, we have little exposure to foreign currency price fluctuations. However, as a result of ouracquisition of the API manufacturing business in Éragny-sur-Epte, France ,   we are exposed to market risk related to changes inforeign currency exchange rates. Specifically, our insulin sales contracts are primarily denominated in Euros, which are subject tofluctuations relative to the U.S. dollar , or USD .   We do not currently hedge our foreign currency exchange rate risk. At thistime, an immediate 10% change in currency exchange rates would not have a material effect on our financial position, results ofoperations or cash flows.Our Chinese subsidiary, Amphastar Nanjing Pharmaceuticals, Limited, or ANP, maintains their books of record in Chinese Yuan,or CNY. These books are remeasured into the functional currency of USD, using the current or historical exchange rates. Theresulting currency re-measurement adjustments and other transactional foreign exchange gains and losses are reflected in ourstatement of operations. Our French subsidiary, Amphastar France Pharmaceuticals, S . A . S . , or AFP, maintains their books of record in Euros. Thesebooks are translated to USD at the average exc hange rates during the period. Assets and liabilities are translated at the rate ofexchange prevail ing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the da te of the equitytransactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of othercomprehensive income (loss).   We do not undertake hedging transactions to cover our foreign currency exposure.As of December 31, 201 5 and 201 4 ,   our foreign subsidiaries had receivables denominated in foreign currencies in the amountof $ 2. 9 million and  $ 8.5 million, respectively.89 Table of ContentsItem 8. Financial Statements and Supplementary Data.Index to Amphastar Pharmaceuticals, Inc. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm      91  Consolidated Balance Sheets   92  Consolidated Statements of Operations   93  Consolidated Statements of Comprehensive Income (Loss)   94  Consolidated Statements of Stockholders’ Equity   95  Consolidated Statements of Cash Flows   97  Notes to Consolidated Financial Statements   99    90 Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Amphastar Pharmaceuticals, Inc.We have audited the accompanying consolidated balance sheets of Amphastar Pharmaceuticals, Inc. as of December 31, 201 5and 201 4 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cashflows for each of the three years in the period ended December 31, 201 5 . These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financialreporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial positionof Amphastar Pharmaceuticals, Inc. at December 31, 201 5 and 201 4 and the consolidated results of its operations, and its cashflows for each of the three years in the period ended December 31, 201 5 , in conformity with U.S. generally accepted accountingprinciples./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 15 , 201 6   91 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share data)    December 31, December 31,   2015 2014 ASSETS       Current Assets:       Cash and cash equivalents $66,074 $67,828 Restricted cash and restricted short-term investments  1,285  1,495 Accounts receivable, net  33,233  22,852 Inventories, net  70,665  82,332 Income tax refund and deposits  238  273 Prepaid expenses and other assets  4,439  3,683 Deferred tax assets   —  19,533 Total current assets  175,934  197,996 Property, plant, and equipment, net  142,161  138,289 Goodwill and intangible assets, net  39,901  42,565 Other assets  4,696  3,588 Deferred tax assets  27,444  6,932         Total assets $390,136 $389,370         LIABILITIES AND EQUITY       Current Liabilities:       Accounts payable $13,872 $10,161 Accrued liabilities  16,732  13,144 Income taxes payable  3,076  3,123 Accrued payroll and related benefits  12,840  11,449 Current portion of product return accrual  1,858  1,918 Current portion of deferred revenue  643  14,013 Current portion of long-term debt and capital leases  10,934  7,594 Current portion of deferred tax liabilities   —  1,193 Total current liabilities  59,955  62,595         Long-term product return accrual  763  490 Long-term reserve for income tax liabilities  497  499 Long-term deferred revenue  1,339  1,982 Long-term debt and capital leases, net of current portion  30,165  36,106 Long-term deferred tax liabilities   —  5,838 Other long-term liabilities  1,907   — Total liabilities  94,626  107,510 Commitments and Contingencies:       Stockholders’ equity:       Preferred stock: par value $.0001; authorized shares— 20,000,000; no shares issued and outstanding  —  — Common stock: par value $.0001; authorized shares— 300,000,000;   issued and outstanding shares—45,960,206 and 45,198,491 at December 31, 2015 and 44,676,167 and 44,646,767 at December 31,2014, respectively  5  4 Additional paid-in capital  247,829  220,745 Retained earnings  60,323  63,110 Accumulated other comprehensive loss  (2,475)  (1,654) Treasury stock  (10,172)  (345) Total stockholders’ equity  295,510  281,860         Total liabilities and stockholders’ equity $390,136 $389,370 See accompanying notes to consolidated financial statements. 92 Table of Contents AMPHASTAR PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)    Year Ended December 31,   2015 2014 2013 Net revenues $251,519 $210,461 $229,681 Cost of revenues  174,172  159,205  142,725 Gross profit  77,347  51,256  86,956            Operating expenses:          Selling, distribution, and marketing  5,470  5,564  5,349 General and administrative  41,504  34,809  30,972 Research and development  37,065  28,427  33,019 Impairment of long-lived assets  206  439  126 Total operating expenses  84,245  69,239  69,466            Income (loss) from operations  (6,898)  (17,983)  17,490            Non-operating income (expense):          Interest income  315  243  187 Interest expense  (987)  (609)  (958) Other income (expense), net  (2,794)  201  508 Total non-operating income (expense), net  (3,466)  (165)  (263)            Income (loss) before income taxes  (10,364)  (18,148)  17,227 Income tax expense (benefit)  (7,577)  (7,449)  5,365            Net income (loss) $(2,787) $(10,699) $11,862            Net income (loss) per share:          Basic $(0.06) $(0.25) $0.31            Diluted $(0.06) $(0.25) $0.31            Weighted-average shares used to compute net income (loss) per share:          Basic  44,961  41,957  38,712            Diluted  44,961  41,957  38,883  See accompanying notes to consolidated financial statements.93 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands)    Year Ended December 31,   2015 2014 2013 Net income (loss) $(2,787) $(10,699) $11,862            Accumulated other comprehensive income (loss)          Foreign currency translation adjustment  (805)  (1,810)  — Change in actuarial valuation  (16)  156  — Total accumulated other comprehensive income (loss)  (821)  (1,654)   —            Total comprehensive income (loss) $(3,608) $(12,353) $11,862  See accompanying notes to consolidated financial statements.  94 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share data)    Common Stock       Accumulated Treasury Stock           Additional    Other                Paid-in Retained Comprehensive           Shares Amount Capital Earnings Income (loss) Shares Amount Total Balance as of December 31, 2012 38,681,660 $4 $171,488 $61,947 $ —  — $ — $233,439 Net income —  —  —  11,862  — —  —  11,862 Reduction of excess tax benefit of share-based awards —  —  (647)  —  — —  —  (647) Exercise of stock options 4,200  —  55  —  — —  —  55 Issuance of common stock to employeesin connection with the release of vestedrestricted stock units, net of commonstock withheld to settle equity awards 14,023  —  (199)  —  — —  —  (199) Issuance of common stock tononemployees in connection with therelease of vested restricted stock units 66,057  —  —  —  — —  —  — Nonemployee share-based compensationexpense ( $499 related to stock optionawards and $447 related to RSU awards) —  —  946  —  — —  —  946 Employee share-based compensationexpense ( $5,926 related to stockoption awards and $163 related to RSUawards) —  —  6,089  —  — —  —  6,089 Balance as of December 31, 2013 38,765,940  4  177,732  73,809   —  —   —  251,545 Net loss —  —  —  (10,699)  — —  —  (10,699) Accumulated other comprehensive loss —  —  —  —  (1,654) —  —  (1,654) Reduction of excess tax benefit of share-based awards —  —  (1,109)  —  — —  —  (1,109) Common stock issued through initial publicoffering 5,840,000  —  38,018  —  — —  —  38,018 Cost related to public offering —  —  (3,358)  —  — —  —  (3,358) Treasury stock acquired —  —  —  —  — (29,400)  (345)  (345) Exercise of stock options 30,000  —  571  —  — —  —  571 Issuance of common stock to employees inconnection with the release of vestedrestricted stock units, net of common stockwithheld to settle equity awards 14,306  —  (389)  —  — —  —  (389) Issuance of common stock to nonemployeesin connection with the release of vestedrestricted stock units 25,921  —  —  —  — —  —  — Nonemployee share-based compensationexpense ( $576 related to stockoption awards and $370 related to RSUawards) —  —  946  —  — —  —  946 Employee share-based compensationexpense ( $6,728 related to stock optionawards and $1,606 related to RSU awards) —  —  8,334  —  — —  —  8,334 Balance as of December 31, 2014 44,676,167  4  220,745  63,110  (1,654) (29,400)  (345)  281,860 Net loss  —   —   —  (2,787)   —  —   —  (2,787) Accumulated other comprehensive loss  —   —   —   —  (821)  —   —  (821) Reduction of excess tax benefit of share-based awards  —   —  107   —   —  —   —  107 Treasury stock acquired  —   —   —   —   — (735,679)  (9,865)  (9,865) Issuance of common stock from treasury  —   —  (38)   —   — 3,364  38   — 95 Table of Contents   Common Stock       Accumulated Treasury Stock           Additional    Other                Paid-in Retained Comprehensive           Shares Amount Capital Earnings Income (loss) Shares Amount Total Exercise of stock options 1,067,466  1  13,501   —   —  —   —  13,502 Issuance of common stock to employees inconnection with the release of vested restrictedstock units, net of common stock withheld tosettle equity awards 91,517   —  (621)   —   —  —   —  (621) Issuance of common stock to nonemployees inconnection with the release of vested restrictedstock units 676   —   —   —   —  —   —   — Issuance of common stock to employees underESPP 124,380   —  1,320   —   —  —   —  1,320 Nonemployee share-based compensationexpense ( $579 related to stock option awardsand $552 related to RSU awards)  —   —  1,131   —   —  —   —  1,131 Employee share-based compensation expense ($7,908 related to stock option awards, $3,364related to RSU awards, and $412 related toESPP)  —   —  11,684   —   —  —   —  11,684 Balance as of December 31, 2015 45,960,206 $5 $247,829 $60,323 $(2,475) (761,715) $(10,172) $295,510  See accompanying notes to consolidated financial statements.  96 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)     Year Ended December 31,   2015 2014 2013 Cash Flows From Operating Activities:           Net income (loss)  $(2,787) $(10,699) $11,862 Reconciliation to net cash provided by operating activities:           Impairment of long-lived assets   206  439  126 Loss on disposal of property, plant, and equipment   104  46  91 Depreciation of property, plant, and equipment   11,314  12,528  11,171 Amortization of product rights, trademarks, and patents   1,938  1,920  1,907 Imputed interest accretion   110  163  — Employee share-based compensation expense   11,684  8,334  6,089 Non-employee share-based compensation expense   1,131  946  946 Reserve for income tax liabilities   (1)  499  (167) Changes in deferred taxes   (7,880)  (8,743)  2,248 Changes in operating assets and liabilities:           Accounts receivable, net   (11,012)  1,210  11,824 Inventories, net   9,775  6,565  (18,538) Income tax refund and deposits   21  1,873  (576) Prepaid expenses and other assets   (699)  (88)  29 Income taxes payable   (92)  559  (173) Accounts payable and accrued liabilities   (3,131)  5,500  4,203 Net cash provided by operating activities   10,681  21,052  31,042             Cash Flows From Investing Activities:           Acquisition of business    —  (18,352)  — Purchases of property, plant, and equipment   (14,418)  (18,671)  (17,642) Capitalized labor, overhead, and interest on self-constructed assets   (1,629)  (1,828)  (660) Proceeds from the sale of property, plant and equipment   51  —  — Sales of short-term investments, net    —  —  513 Decrease (increase) in restricted cash   210  (170)  50 Deposits and other assets, net   (1,139)  (752)  (559) Net cash used in investing activities   (16,925)  (39,773)  (18,298)             Cash Flows From Financing Activities:           Net proceeds from issuance of common stock   1,320  38,018  — Repurchase of common stock   (621)  (389)  (199) Excess tax benefit (reduction) related to share-based compensation   107  (1,109)  (647) Net proceeds from equity plans   13,502  571  55 Cost related to public offering    —  (1,920)  — Deferred offering cost    —  —  (1,427) Purchase of treasury stock   (9,865)  (345)  — Proceeds from borrowing under lines of credit    —  25,000  66,000 Repayments under lines of credit    —  (40,000)  (71,000) Proceeds from issuance of long-term debt   6,785  26,505  — Principal payments on long-term debt   (8,991)  (8,216)  (2,152) Principal payments on short-term debt    —  (5,998)  — Net cash provided by (used in) financing activities   2,237  32,117  (9,370)             Effect of exchange rate changes on cash   2,253  845   —             Net increase (decrease) in cash and cash equivalents   (1,754)  14,241  3,374             97 Table of Contents    Year Ended December 31,   2015 2014 2013 Cash and cash equivalents at beginning of period   67,828  53,587  50,213             Cash and cash equivalents at end of period  $66,074 $67,828 $53,587                         Noncash Investing and Financing Activities:           Equipment acquired under capital leases  $150 $78 $1,323             Supplemental Disclosures of Cash Flow Information:           Interest paid  $1,941 $2,607 $1,100 Income taxes paid  $146 $436 $4,158  See accompanying notes to consolidated financial statements  98 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General Amphastar Pharmaceuticals, Inc., a California corporation, was incorporated on February 29, 1996 and merged with and intoAmphastar Pharmaceuticals, Inc., a Delaware corporation, in July 2004 ( together with its subsidiaries, hereinafter referred to as“the Company”). The Company is a specialty pharmaceutical company that primarily develops, manufactures, markets, and sellsgeneric and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to marketentry. Additionally, in 2014, the Company commenced sales of insulin active pharmaceutica l ingredient, or API products. Mostof the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributedthrough group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to otherpharmaceutical companies for use in their own products and are being used by the Company in the development of injectablefinished pharmaceutical products .  The Company’s inhalation products will be primarily distributed through drug retailers oncethey are brought to market. 2. Summary of Significant Accounting Policies Basis of Presentation All significant intercompany activity has been eliminated in the preparation of the consolidated financial statements. Someinformation and footnote disclosures normally included in financial statements prepared in accordance with generally acceptedaccounting principles, or GAAP, have been condensed or omitted pursuant to those rules and regulations. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries:International Medication Systems, Limited, or IMS; Amphastar Laboratories, Inc.; Armstrong Pharmaceuticals, Inc., orArmstrong; Amphastar Nanjing Pharmaceuticals Co., Ltd., or ANP; and Amphastar France Pharmaceuticals, S.A.S., or AFP. Use of Estimates The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates andassumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual resultscould differ from those estimates. The principal accounting estimates include: determination of allowances for doubtful accountsand discounts, provision for chargebacks, liabilities for product returns, reserves for excess or unsellable inventory, impairment oflong-lived and intangible assets and goodwill, self-insured claims, workers’ compensation liabilities, litigation reserves, stockprice volatilities for share-based compensation expense, fair market values of the Company’s common stock, valuationallowances for deferred tax assets, and liabilities for uncertain income tax positions. Foreign Currency The functional currency of the Company and its domestic and Chinese subsidiari es is the U.S. dollar, or USD. The Company’sChinese subsidiary, ANP, maintains its books of record in Chinese Yuan. These books are remeasured into the functionalcurrency of USD using the current or historical exchange rates. The resulting currency remeasurement adjustments and othertransactional foreign exchange gains and losses are reflected in the Comp any’s statement of operations. The Company’s Frenchsubsidiary, AFP, maintains its books of record in Euros, which is the local currency in France and has been determined to be itsfunctional currency. These books are translated into USD using average exc hange rates during the period. Assets and liabilitiesare translated at the rate of exchange prevail ing on the balance sheet date. Equity is translated at the prevailing rate of exchangeat the da te of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as acomponent of other comprehensive income (loss).  Additionally, the Company does not undertake hedging transactions to coverits foreign currency exposure. 99 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comprehensive Income (Loss) For the years ended December 31, 2015 and 2014, the Company included its foreign currency translation as part of itscomprehensive income   ( loss ) .  For the year ended December 31, 2013, net income equaled total comprehensive income. Shipping and Handling Costs For the years ended December 31, 2015, 2014, and 2013, the Company included shipping and handling costs of approximately$2.6 million, $2.5 million, and $2.4 million, respectively, in selling, distribution and marketing expenses in the accompanyingconsolidated statements of operations. Research and Development Costs Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’sresearch and development activities including salaries and related employee benefits, costs associated with clinical trials,nonclinical research and development activities, regulatory activities, research ‑related overhead expenses and fees paid toexternal service providers. The Company may produce inventories prior to or with the expectation of receiving marketing authorization in the near term,based on operational decisions about the most effective use of existing resources. This inventory is referred to as pre ‑launchinventory. The Company’s policy is to expense pre ‑launch inventory as research and development costs, as incurred, until thedrug candidate receives marketing authorization. As a result of the policy, while marketing authorization may have been receivedby the end of a reporting period, any inventories produced prior to such authorization are expensed. If marketing authorization isreceived and previously expensed pre ‑launch inventory is sold, such sales may contribute up to a 100% margin to the Company’soperating results. Pre ‑launch inventory costs include cost of work in process materials and finished drug products.  Financial Instruments The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accruedexpenses, and short-term borrowings approximate fair value due to the short maturity of these items. A majority of theCompany’s long-term obligations consist of variable rate debt and their carrying value approximates fair value as the statedborrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities. However, theCompany has one fixed-rate, long-term mortgage for which the carrying value differs from the fair value and is not remeasuredon a recurring basis (see Note 13). Cash and Cash Equivalents Cash and cash equivalents consist of cash, money market funds, certificates of deposit and highly liquid investments purchasedwith original maturities of three months or less. Restricted Cash and Restricted Short ‑Term Investments Restricted cash and restricted short ‑term investments as of December 31, 2015 and 2014 included $1.3 million and $1.5 million,respectively, in certificates of deposit, which is the collateral required for the Company to qualify for workers’ compensation self‑insurance and is available to meet the Company’s workers’ compensation obligations on a current basis, as needed. These fundsare classified as current assets. The Company’s short ‑term investments are classified as held ‑ to ‑maturity and consist ofcertificates of deposit purchased with maturities greater than three months but mature within one year of the date of purchase. Theestimated fair value of each investment approximates its amortized cost.100 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance for Doubtful Accounts Receivable The Company evaluates the collectability of accounts receivable based on a combination of factors. When the Company is awareof circumstances that may impair a customer’s ability to pay subsequent to the original sale, the Company will record a specificallowance to reduce the amounts due to the amount the Company reasonably believes will be collected. For all other customers,the Company recognizes an allowance for doubtful accounts based on factors that include the length of time the receivables arepast due, industry and geographic concentrations, the current business environment and historical collection experience. Inventories Inventories are stated at the lower of cost or market, using the first ‑in, first ‑out method. Provisions are made for slow ‑moving,unsellable, or obsolete items. Inventories consist of currently marketed products and products manufactured under contract. Property, Plant and Equipment Property, plant and equipment are stated at cost or, in the case of assets acquired in a business combination, at fair value on thepurchase date. Depreciation and amortization expense is computed using the straight ‑line method over the estimated useful livesof the related assets as follows:  Buildings    20 - 31  years Machinery and equipment 2  -  12  years Furniture and fixtures 3 - 7  years Automobiles 4 - 5  years Leasehold improvements Lesser of remaining lease term or useful life  Goodwill and Intangible Assets Intangible assets with finite lives are amortized over the period the asset is expected to contribute directly or indirectly to thefuture cash flows of the Company. Product rights are amortized over their estimated useful lives ranging from five to 15  years ona straight ‑line basis since their projected revenues are expected to be consistent each year. Patents and trademarks are amortizedon a straight ‑line basis over their estimated useful lives, generally ranging from 10 to 20  years. Land ‑use rights are amortizedon a straight ‑line basis over their useful lives, generally ranging from 37 to 50  years. In accordance with the Company’saccounting policy, the Company tests all intangible assets on an annual basis and between annual tests whenever there is anindication of impairment. Impairment of Long ‑Lived Assets The Company reviews long ‑lived assets and definite ‑lived intangibles for impairment in the fourth quarter of each year orwhenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum ofthe expected future undiscounted cash flows is less than the carrying amount of the asset, further impairment analysis isperformed. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of theassets (assets to be held and used) or fair value less cost to sell (assets to be disposed of). The Company also reviews the usefullives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life.Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized. 101 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Income Taxes The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based onthe temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. Avaluation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized. The Company hasadopted the with-and-without methodology for determining when excess tax benefits from the exercise of share ‑based awards arerealized. Under the with-and-without methodology, current year operating loss deductions and prior-year operating losscarryforwards are deemed to be utilized prior to the utilization of current-year excess tax benefits from share ‑based awards. Self-Insured Claims The Company is primarily self-insured, up to certain limits, for workers’ compensation claims. The Company has purchased stop-loss insurance, which will reimburse the Company for individual claims in excess of $350,000 annually or aggregate claimsexceeding $1.9  million annually. Operations are charged with the cost of claims reported and an estimate of claims incurred butnot reported . A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, isactuarially determined and reflected in accrued liabilities in the accompanying consolidated balance sheets. Total expense underthe program was approximately $1.2 million, $1.0 million, and $0.8 million, for the years ended December 31, 2015, 2014 and2013, respectively. The self-insured claims liability was $2.7 million and $2.2 million at December 31, 2015 and 2014,respectively. The determination of such claims and expenses and the appropriateness of the related liability is reviewedperiodically and updated, as necessary. Changes in estimates are recorded in the period identified. Business Combinations Business combinations are accounted for in accordance with Accounting Standards Codification, or ASC 805, BusinessCombinations, using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and theliabilities assumed at the acquisition date measured at their fair values as of that date. Fair value determinations are based ondiscounted cash flow analyses or other valuation techniques. In determining the fair value of the assets acquired and liabilitiesassumed in a material acquisition, the Company may utilize appraisals from third party valuation firms to determine fair values ofsome or all of the assets acquired and liabilities assumed, or may complete some or all of the valuations internally. In either case,the Company takes full responsibility for the determination of the fair value of the assets acquired and liabilities assumed. Thevalue of goodwill reflects the excess of the fair value of the consideration conveyed to the seller over the fair value of the netassets received. Acquisition-related costs are costs the Company incurs to effect a business combination. The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting standards update that creates a singlesource of revenue guidance for companies in all industries. The new standard provides guidance for all revenue arising fromcontracts with customers and affects all entities that enter into contracts to provide goods or services to their customers, unless thecontracts are within the scope of other accounting standards. It also provides a model for the measurement and recognition ofgains and losses on the sale of certain nonfinancial assets. This guidance must be adopted using either a full retrospectiveapproach for all periods presented or a modified retrospective approach and will be effective for fiscal years beginning afterDecember 15, 2017, which will be the Company's fiscal 2018. The Company has not yet evaluated the potential impact ofadopting the guidance on the Company's consolidated financial statements. In June 2014, the FASB issued an accounting standards update that requires a performance target that affects vesting of a share-based payment award and that could be achieved after the requisite service period to be treated as a performance102 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award.Compensation cost should be recognized over the required service period, if it is probable that the performance target will beachieved. This guidance will be effective for fiscal years beginning after December 15, 2015, which will be the Company's fiscal2016, with early adoption permitted. The Company does not expect the adoption of the guidance will have a material impact onthe Company's consolidated financial statements. In August 2014, the FASB issued an accounting standards update that will require management to evaluate if there is substantialdoubt about the Company’s ability to continue as a going concern and, if so, to disclose this in both interim and annual reportingperiods.  This guidance will become effective for the Company’s annual filing for the period ending December 31, 2016 andinterim periods thereafter, and allows for early adoption.  The Company does not expect the adoption of the guidance will have amaterial impact on the Company’s consolidated financial statements. In July 2015, the FASB issued an accounting standards update which requires entities to measure most inventories at the lower ofcost and net realizable value, or NRV, thereby simplifying the current guidance under which an entity must measure inventory atthe lower of cost or market. Under the new guidance, inventory is measured at the lower of cost and net realizable value, whicheliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRVless a normal profit margin). The guidance defines NRV as the estimated selling prices in the ordinary course of business, lessreasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginningafter December 15, 2016, and interim periods therein. The standard will be effective for the Company for the first quarter of theCompany’s fiscal 201 7 .   Early application is permitted. The new guidance must be applied prospec tively.  The Company doesnot believe the adoption of this accounting guidance will have a material impact on the Company’s consolidated financialstatements and related disclosures. In November 2015, the FASB issued an accounting standards update the balance sheet classification of deferred taxes.  Underexisting standards, deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and net long-termasset or liability. To simplify presentation, the new guidance will require that all deferred tax assets and liabilities, along withrelated valuation allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will nowonly have one net long-term deferred tax asset or liability. The new guidance does not change the existing requirement thatprohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance iseffective for annual periods beginning after December 15, 2016, and interim periods therein . Early adoption is permitted. Thenew guidance may be applied prospectively or retrospectively. The Company has elected to adopt the guidance early and applythe guidance prospectively, therefore, prior periods were not retrospectively adjusted. The reclassification of the Company’sdeferred tax assets and liabilities does not have any impact to the Company’s net income or cash flow, thus the adoption of theguidance does not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued accounting standards update that is aimed at making leasing activities more transparent andcomparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset andcorresponding lease liability, including leases currently accounted for as operating leases. This guidance will become effective forthe Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interimreporting periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of thisguidance will have on its consolidated financial statements and related disclosures. 3. Business Acquisition Acquisition of Merck’s API Manufacturing Business On April 30, 2014, the Company completed the acquisition of the Merck Sharpe & Dohme’s API manufacturing business inÉragny-sur-Epte, France, or the Merck API Transaction, which manufactures porcine insulin API and103 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recombinant human insulin API. The purchase price of the transaction totaled €24.8  million, or $34.4  million on April 30, 2014,subject to certain customary post ‑closing adjustments and currency exchange fluctuations. The terms of the purchase includemultiple payments over four years as follows (see Note 13):       U.S.   Euros Dollars   (in thousands) At Closing, April 2014    €13,252    $18,352 December 2014  4,899  5,989 December 2015  3,186  3,483 December 2016  3,186  3,475 December 2017  500  545   €25,023 $31,844  In order to facilitate the acquisition, the Company established a subsidiary in France, AFP. The Company will continue thecurrent site manufacturing activities, which consist of the manufacturing of porcine insulin API and recombinant human insulinAPI, or RHI API. As part of the transaction, the Company has entered into various additional agreements, including varioussupply agreements, as well as the assignment and/or licensing of patents under which Merck was operating at this facility. Inaddition, certain existing customer agreements have been assigned to AFP. Currently, the Company is in the process oftransferring the manufacturing of starting material for RHI from Merck to AFP. This process will require capital expenditures atAFP and is expected to take two or more years to complete. The transaction is accounted for as a business combination in accordance with ASC 805. The following table summarizes theestimated fair values of the assets acquired and liabilities assumed as of the acquisition date:    Fair Value      U.S.   Euros Dollars   (in thousands) Inventory    €15,565    $21,554 Real property  4,800  6,647 Machinery and equipment  6,800  9,417 Intangibles  80  111 Goodwill  3,155  4,369 Total assets acquired €30,400 $42,098 Accrued liabilities €2,425 $3,358 Deferred tax liabilities  3,155  4,369 Total liabilities assumed  5,580  7,727 Total fair value of consideration transferred €24,820 $34,371  The operations of the acquired business have been included in the Company’s consolidated financial statements commencing onthe acquisition date. The results of operations for this acquisition have not been separately presented because this acquisition isnot material to the Company’s consolidated results of operations. The following unaudited pro forma financial information for the years ended December 31, 2015 and 2014 gives effect to thetransaction as if it ha d occurred on January 1, 2013. Such unaudited pro forma information is based on historical financialinformation prior to the transaction as well as actual results subsequent to the acquisition with respect to the transaction and doesnot reflect estimated operational and administrative cost savings, or synergies, for periods prior to the transaction, thatmanagement of the combined company estimates may be achieved as a result of the transaction. 104 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The unaudited pro forma information primarily reflects the additional depreciation related to the fair value adjustment to property,plant and equipment acquired, valuation step up related to the fair value of inventory and additional interest expense associatedwith the financing obtained by the Company in connection with the acquisition.    Year Ended   December 31,    2015 2014   (in thousands,   except per share data) Net revenues    $251,519    $212,745 Net loss  (2,787)  (11,928) Diluted net loss per share $(0.06) $(0.28)  Acquisition Loan with Cathay Bank  On April 22, 2014, in conjunction with the Merck API Transaction, the Company entered into a secured term loan with CathayBank as lender. The principal amount of the loan is $21.9  million and bears a variable interest rate at the prime rate as publishedby The Wall Street Journal , with a minimum interest rate of 4.00% . Beginning on June 1, 2014 and through the maturity date,April 22, 2019 , the Company must make monthly payments of principal and interest based on the then outstanding amount of theloan amortized over a 120 ‑month period. On April 22, 2019, all amounts outstanding under the loan become due and payable,which would be approximately $12.0  million based upon an interest rate of 4.00% . The loan is secured by 65% of the issued andoutstanding shares of stock in AFP and certain assets of the Company, including accounts receivable, inventory, certaininvestment property, goods, deposit accounts, and general intangibles but not including the Company’s equipment and realproperty. The loan includes customary restrictions on, among other things, the Company’s ability to incur additional indebtedness, paydividends in cash or make other distributions in cash, make certain investments, create liens, sell assets, and make loans. The loanalso includes customary events of defaults, the occurrence and continuation of any of which provide Cathay Bank the right toexercise remedies against the Company and the collateral securing the loan. These events of default include, among other things,the Company’s failure to pay any amounts due under the loan, the Company’s insolvency, the occurrence of any default undercertain other indebtedness or material agreements, and a final judgment against the Company that is not discharged in 30 days. 4. Revenue Recognition Generally, revenue is recognized at the time of product delivery to the Company’s customers. In some cases, revenue isrecognized at the time of shipment when stipulated by the terms of the sale agreements. The Company also records profit-sharingrevenue stemming from a distribution agreement with Allergan plc, or Allergan (see Note 17). Profit-sharing revenue isrecognized at the time Allergan sells the products to its customers. Revenues derived from contract manufacturing services arerecognized when third-party products are shipped to customers, after the customer has accepted test samples of the products to beshipped. The Company does not recognize product revenue unless the following fundamental criteria are met: (i) persuasive evidence of anarrangement exists, (ii) transfer of title has occurred, (iii) the price to the customer is fixed or determinable, and (iv) collection isreasonably assured. Furthermore, the Company does not recognize revenue until all customer acceptance requirements have beenmet. The Company estimates and records reductions to revenue for discounts, product returns, and pricing adjustments, such aswholesaler chargebacks, in the same period that the related revenue is recorded. The Company’s accounting policy is to review each agreement involving contract development and manufacturing services todetermine if there are multiple revenue-generating activities that constitute more than one unit of accounting.105 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues are recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. The Companydoes not have any revenue arrangements with multiple deliverables. Provision for Wholesaler Chargebacks The provision for chargebacks is a significant estimate used in the recognition of revenue. As part of its sales terms withwholesale customers, the Company agrees to reimburse wholesalers for differences between the gross sales prices at which theCompany sells its products to wholesalers and the actual prices of such products at the time wholesalers resell them under theCompany’s various contractual arrangements with third parties such as hospitals and group purchasing organizations. TheCompany estimates chargebacks at the time of sale to wholesalers based on wholesaler inventory stocking levels, historicchargeback rates, and current contract pricing. The provision for chargebacks is reflected in net revenues and a reduction to accounts receivable.  The following table is ananalysis of the chargeback provision:     Year Ended December 31,     2015 2014    (in thousands) Beginning balance     $11,872    $18,104 Provision related to sales made in the current period   162,238  156,235 Credits issued to third parties   (158,893)  (162,467) Ending balance  $15,217 $11,872  Changes in chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, thelevel of inventory held by the wholesalers, and on the wholesaler’s customer mix. The approach that the Company uses toestimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small.The Company continually monitors the provision for chargebacks and makes adjustments when it believes that the actualchargebacks may differ from the estimates. The settlement of chargebacks generally occurs within 30 days after the sale towholesalers. Accrual for Product Returns The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, productssold to Allergan are non-returnable. The Company’s product returns primarily consist of the returns of expired products fromsales made in prior periods. Returned products cannot be resold. At the time product revenue is recognized, the Company recordsan accrual for estimated returns. The accrual is based, in part, upon the historical relationship of product returns to sales andcustomer contract terms. The Company also assesses other factors that could affect product returns including market conditions,product obsolescence, and the introduction of new competition. Although these factors do not normally give the Company’scustomers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimatelylead to increased returns. The Company analyzes these situations on a case-by-case basis and makes adjustments to the productreturn reserve as appropriate.106 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for product returns is reflected in net revenues. The following table is an analysis of product return liability:     Year EndedDecember 31,     2015 2014    (in thousands) Beginning balance     $2,408    $4,592 Provision for product returns   1,675  (714) Credits issued to third parties   (1,462)  (1,470) Ending balance  $2,621 $2,408  For the years ended December 31, 2015 and 2014 ,   the Company’s aggregate product return rate was 1 .1% and 1.1 %   ofqualified sales, respectively. 5. Income (Loss) per Share Basic income (loss) per share is calculated based upon the weighted-average number of shares outstanding during the period andcontingently issuable shares such as fully vested deferred stock units, or DSUs, and in 2015, such equity was issued as restrictedstock units, or RSUs (such RSUs and DSUs are collectively referred to herein as RSUs), in addition to shares expected to beissued under the Company’s employee stock purchase plan, or ESPP, as of the date all necessary conditions for issuance havebeen met. Diluted income per share gives effect to all potential dilutive shares outstanding during the period, such as stockoptions, nonvested RSUs and shares issuable under the Company’s ESPP. As the Company reported a net loss for the years ended December 31, 2015 and 2014, the diluted net loss per share, as reported,is equal to the basic net loss per share since the effect of the assumed exercise of stock options, vesting of nonvested RSUs, andissuance of common shares under the Company’s ESPP are anti-dilutive. Total stock options, nonvested RSUs, and sharesissuable under the Company’s ESPP excluded from the year ended December 31, 2015 net loss per share were 12,240,467;866,540, and 61,766, respectively. Total stock options and nonvested RSUs excluded from the year ended December 31, 2014 netloss per share were 11,371,891 and 503,010, respectively.     For the year ended December 31, 2013, options to purchase 7,124,091 shares of stock with a weighted-average exercise price of$17.62 per share, respectively, were excluded in the computation of diluted net income per share because the effect from theassumed exercise of these options would be anti-dilutive.  107 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides the calculation of basic and diluted net income (loss) per share for each of the periods presented:   Year Ended December 31,    2015 2014 2013   (in thousands, except per share data) Basic and dilutive numerator:                         Net income (loss) $(2,787) $(10,699) $11,862 Denominator:          Shares outstanding  44,961  41,957  38,705 Contingently issuable shares – vested RSUs  —  —  7 Weighted-average shares outstanding — basic  44,961  41,957  38,712            Net effect of dilutive securities:          Stock options   —  —  104 Contingently issuable shares – nonvested RSUs   —  —  67 Weighted-average shares outstanding — diluted  44,961  41,957  38,883 Net income (loss) per share — basic $(0.06) $(0.25) $0.31 Net income (loss) per share — diluted $(0.06) $(0.25) $0.31   6. Segment Reporting The Company’s business is the development, manufacture, and marketing of pharmaceutical products. The Company hasestablished two reporting segments that each report to the Chief Operating Decision Maker, or CODM, as defined in ASC 280,Segment Reporting.  The Company’s performance is assessed and resources are allocated by the CODM based on the followingtwo reportable segments: ·Finished pharmaceutical products·Active pharmaceutical ingredients, or API The finished pharmaceutical products segment manufactures, markets and distributes enoxaparin, Cortrosyn , Amphadase ,naloxone, lidocaine jelly, as well as various other critica l and non-critical care drugs. The API segment manufactures anddistributes recombinant hum an insulin and porcine insulin for external customer s and internal product development .108 ® ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Selected financial information by reporting segment is presented below:   Year Ended December 31,   2015 2014 2013   (in thousands) Net revenues:                         Finished pharmaceutical products $224,941 $198,480 $229,681 API  26,578  11,981   — Total net revenues  251,519  210,461  229,681            Gross Profit:          Finished pharmaceutical products  74,146  52,724  86,956 API  3,201  (1,468)   — Total gross profit  77,347  51,256  86,956            Operating expenses  84,245  69,239  69,466            Income (loss) from operations  (6,898)  (17,983)  17,490 Non-operating income (expenses)  (3,466)  (165)  (263)            Income (loss) before income taxes $(10,364) $(18,148) $17,227  The Company manages its business segments to the gross profit level and manages its operating and other costs on a company-wide basis.  The Company does not identify total assets by segment for internal purposes, as the Company’s CODM does notassess performance, make strategic decisions, or allocate resources based on assets. Net revenues and carrying values of long-lived assets of enterprises by geographic regions are as follows:    Net Revenue Long-Lived Assets   Year Ended December 31,  December 31,    2015 2014 2013 2015 2014   (in thousands) U.S. $243,295    $198,480    $229,681    $100,404    $102,313 China   —   —   —  28,547  22,170 France  8,224  11,981   —  13,210  13,806 Total $251,519 $210,461 $229,681 $142,161 $138,289    7. Customer and Supplier Concentration Customer Concentrations Three large wholesale drug distributors, AmerisourceBergen Corporation, or AmerisourceBergen, Cardinal Health, Inc. orCardinal, and McKesson Corporation, or McKesson, are all distributors of the Company’s products, as well as suppliers of abroad range of health care products. Allergan plc. has exclusive marketing rights of the Company’s enoxaparin product to theU.S. retail pharmacy market. MannKind Corporation began buying RHI API from the Company in December 2014. TheCompany considers these five customers to be its major customers, as each individually and these customers collectively,represented a significant percentage of the Company’s net revenue for the109 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS years ended December 31, 2015 , 2014, and 2013, and accounts receivable as of December 31, 2015 and 2014.  The followingtable provides accounts receivable and net revenues information for these major customers:    % of Total Accounts  % of Net  Receivable  Revenue  December 31,  December 31,   Year Ended December 31,      2015    2014     2015    2014    2013 Allergan plc  12%18%   21%30%35%AmerisourceBergen 12%5%   17%15%15%Cardinal Health 20%15%   17%14%13%MannKind Corporation 13%21%   8%2% — McKesson 21%13%   22%22%26%(1)In June 2015, Actavis plc adopted Allergan plc as its new global name. Supplier Concentrations The Company depends on suppliers for raw materials, active pharmaceutical ingredients, and other components that are subject tostringent U.S. Food and Drug Administration, or FDA, requirements. Some of these materials may only be available from one ora limited number of sources. Establishing additional or replacement suppliers for these materials may take a substantial period oftime, as suppliers must be approved by the FDA. Furthermore, a significant portion of raw materials may only be available fromforeign sources. If the Company is unable to secure, on a timely basis, sufficient quantities of the materials it depends on tomanufacture and market its products, it could have a materially adverse effect on the Company’s business, financial condition,and results of operations. 8. Fair Value Measurements The accounting standards of the Financial Accounting Standards Board, or FASB, define fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or mostadvantageous market for the asset or liability at the measurement date (an exit price). These standards also establish a hierarchythat prioritizes observable and unobservable inputs used in measuring fair value of an asset or liability, as described below: ·Level 1  – Inputs to measure fair value are based on quoted prices (unadjusted) in active markets on identical assets orliabilities; ·Level 2 – Inputs to measure fair value are based on the following: a) quoted prices in active markets on similar assets orliabilities, b) quoted prices for identical or similar instruments in inactive markets, or c) observable (other than quotedprices) or collaborated observable market data used in a pricing model from which the fair value is derived; and ·Level 3  – Inputs to measure fair value are unobservable and the assets or liabilities have little, if any, market activity;these inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricingthe assets or liabilities based on best information available in the circumstances. The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The Company classifies its cash equivalents and short-term investments as Level 1 assets, as they are valued on a recurring basisusing quoted market prices with no valuation adjustments applied. The Company does not hold any Level 2 or Level 3instruments that are measured for fair value on a recurring basis. 110 (1)Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of the Company’s financial assets and liabilities measured on a recurring basis, as of December 31, 2015 and2014, are as follows:       Quoted Pricesin            Active Markets Significant Other Significant Other      for Identical Observable Unobservable      Assets Inputs Inputs      Total    (Level 1)    (Level 2)    (Level 3)   (in thousands) Cash equivalents:             Money market accounts $42,486 $42,486 $— $— Restricted short-term investments:             Certificates of deposit  1,285  1,285  —  —               Fair value measurement as of December 31, 2015 $43,771 $43,771 $— $— Cash equivalents:             Money market accounts $42,994 $42,994 $— $— Restricted short-term investments:             Certificates of deposit  1,495  1,495  —  —               Fair value measurement as of December 31, 2014 $44,489 $44,489 $— $—  The fair value of the Company’s cash equivalents includes money market funds and certificates of deposit with original maturitiesof three months or less. Short-term investments consist of certificate of deposit accounts that expire within 12 months for whichmarket prices are readily available. The restrictions placed on the certificate of deposit accounts have a negligible effect on thefair value of these financial assets; these funds are restricted to meet the Company’s obligation for workers’ compensation claims. The Company adopted the required fair value measurements and disclosures provisions related to nonfinancial assets andliabilities. These assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustmentsin certain circumstances. These items primarily include long-lived assets, goodwill, and intangible assets for which the fair valueof assets is determined as part of the related impairment test. As of December 31, 2015 and 2014, there were no significantadjustments to fair value for nonfinancial assets or liabilities. 111 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Goodwill and Intangible Assets Intangible assets include product rights, trademarks, patents, land-use rights, and goodwill. The table below shows the weighted-average life, original cost, accumulated amortization, and net book value by major intangible asset classification:    Weighted-Average    Accumulated         Life (Years)    OriginalCost    Amortization    Net BookValue   (in thousands) Definite-lived intangible assets            Product rights 12 $27,134 $22,679 $4,455 Patents 10  293  107  186 Trademarks 11  15  15   — Land-use rights 39  2,540  288  2,252 Other intangible assets 1  590  533  57 Subtotal 12  30,572  23,622  6,950 Indefinite-lived intangible assets            Trademark *  29,225   —  29,225 Goodwill            Finished pharmaceutical products  *  3,726   —  3,726 Subtotal *  32,951   —  32,951 As of December 31, 2015 * $63,523 $23,622 $39,901      Weighted-Average    Accumulated         Life (Years)    Original Cost    Amortization    Net Book Value   (in thousands) Definite-lived intangible assets            Product rights 12 $27,134 $20,896 $6,238 Patents 10  293  78  215 Trademarks 11  19  15  4 Land-use rights 39  2,540  221  2,319 Other intangible assets  1  602  505  97 Subtotal 12  30,588  21,715  8,873 Indefinite-lived intangible assets            Trademark *  29,225  —  29,225 Goodwill            Finished pharmaceutical products *  280  —  280 API *  4,187  —  4,187 Subtotal *  33,692  —  33,692 As of December 31, 2014 * $64,280 $21,715 $42,565 Intangible assets with indefinite lives have an indeterminable average life.  During the year ended December 31, 2015 , we recorded a reclassification to correct an immaterial error in the allocation between segments. Thecorrection of this error would not have resulted in an impairment of either segment’s goodwill in any prior period. Additionally, the correction didnot have an effect on the Company’s consolidated financial statements or segment results of operations for any period.112 (1)* (1) Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill The c hanges in the carrying amounts of goodwill were as follows:     December 31,     2015 2014    (in thousands) Beginning balance     $4,467    $280 Goodwill related to acquisition of business    —  4,369 Currency translation and other adjustments   (741)  (182) Ending balance  $3,726 $4,467  Primatene Trademark In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing,distribution and selling rights related to Primatene Mist, an over-the-counter bronchodilator product, for a total consideration of$29.2 million, which is its carrying value as of December 31, 2015. In determining the useful life of the trademark, the Company considered the following: the expected use of the intangible; thelongevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’sability to renew or extend the asset’s legal or contractual life without substantial costs; effects of the regulatory environment;expected changes in distribution channels; maintenance expenditures required to obtain the expected future cash flows from theasset; and considerations for obsolescence, demand, competition and other economic factors. As a result of environmental concerns about Chlorofluorocarbons, or CFCs, the FDA issued a final ruling on January 16, 2009that required the CFC formulation of its Primatene Mist product to be phased out by December 31, 2011. The formerformulation of Primatene Mist contained CFCs as a propellant; however, the Company intends to use the trademark for a futureversion of Primatene that utilizes hydrofluoroalkane, or HFA, as a propellant. In 2013, the Company filed a new drug application, or NDA, for Primatene HFA and received a Prescription Drug User Fee Actdate set for May 2014. In May 2014, the Company received a complete response letter, or CRL, from the FDA, which requiresadditional non-clinical information, label revisions and follow-up studies (label comprehension, behavioral/human factors andactual use) to assess consumers’ ability to use the device correctly to support approval of the product in the over-the-countersetting. The Company met with the FDA in October 2014 to discuss preliminary data results and to clarify the FDA requirementsfor further studies. The Company received further advice regarding its ongoing studies from the FDA in January 2016 and iscurrently in the process of generating the remaining data required by the CRL and plans to submit an NDA a mendment that itbelieves will address the FDA’s concerns. However, there can be no guarantee that any amendment to the Company’s NDA willresult in timely approval of the product or approval at all. Based on the Company’s filed version of Primatene HFA, the Company’s plan to submit an NDA amendment to address theFDA’s concerns, the long history of the Primatene trademark (marketed since 1963) and the Company’s perpetual rights to thetrademark, the Company has determined that the trademark has an indefinite useful life. If the HFA version is approved by theFDA, it will be marketed under the same trade name; therefore, an impairment charge would not be required. 113 ® ® ® ® ® ® ® ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amortization Included in cost of revenues for the years ended December 31, 2015, 2014 and 2013 is product rights amortization expense of$1.8  million each year, primarily related to Cortrosyn . As of December 31, 2015, the expected amortization expense for all amortizable intangible assets during the next five fiscal yearsended December 31 and thereafter is as follows:    (in thousands) 2016 $1,894 2017  1,894 2018  1,003 2019  101 2020  95 Thereafter  1,963 Total amortizable intangible assets  6,950 Indefinite-lived intangibles  32,951 Total intangibles (net of accumulated amortization) $39,901   10 . Inventories Inventories are stated at the lower of cost or market, using the first-in, first-out method. Provisions are made for slow-moving,unsellable or obsolete items. Inventories consist of the following:     December 31,     2015 2014    (in thousands) Raw materials and supplies     $31,878    $41,996 Work in process   21,455  16,221 Finished goods   19,867  24,755 Total inventory   73,200  82,972 Less reserve for excess and obsolete inventories   (2,535)  (640) Total inventory, net  $70,665 $82,332   11. Property, Plant, and Equipment Property, plant, and equipment consist of the following:     December 31,     2015 2014    (in thousands) Building     $82,309    $67,760 Leasehold improvements   23,392  23,960 Land   6,895  7,020 Machinery and equipment   108,442  104,819 Furniture, fixtures, and automobiles   13,439  12,213 Construction in progress   19,942  25,068 Total property, plant, and equipment   254,419  240,840 Less accumulated depreciation   (112,258)  (102,551) Total property, plant, and equipment, net  $142,161 $138,289  114 ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company incurred depreciation expense of $11.3 million, $12.5 million, and $11.2 million for the years ended December 31,2015, 2014, and 2013, respectively. Interest expense capitalized was approximately $1.1 million, $1.2 million, and $0.1 million, for the years ended December 31,2015, 2014, and 2013, respectively.  The interest expense capitalized is primarily related to certain foreign construction projectsduring the year. As of December 31, 2015 and 2014, the Company had $2.9 million and   $3.4 million, respectively, in capitalized manufacturingequipment that is intended to be used specifically for the manufacture of Primatene HFA. The Company will continue tomonitor developments with the FDA as it relates to its Primatene HFA indefinite lived intangible assets in determining if there isan impairment of these related fixed assets (see Note 9). 12. Impairment of Long-Lived Assets All of the Company’s impairments relate primarily to the write-off of certain manufacturing equipment related to abandonedprojects. For the years ended December 31, 2015, 2014 and 2013, the Company recorded an impairment loss of $0.2 million, $0.4million, and $0.1 million, respectively, in the Finished Pharmaceutical Product segment.   115 ® ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Debt Debt consists of the following:     December 31,     2015 2014    (in thousands) Loans with East West Bank                             Mortgage payable due January 2016  $3,725 $3,887 Mortgage payable due September 2016   2,211  2,289 Line of credit facility due March 2016    —   — Equipment loan due April 2017   1,700  2,923 Equipment loan due January 2019   4,748   —          Loans with Cathay Bank                 Mortgage payable due April 2021   4,460  4,549 Revolving line of credit due May 2016    —   — Acquisition loan due April 2019   19,012  20,870          Loans with Seine-Normandie Water Agency                 French government loan 1 due March 2018   46   — French government loan 2 due June 2020   128   — French government loan 3 due July 2021   325   —          Payment obligation to Merck   3,942  8,160          Equipment under Capital Leases   802  1,022 Total debt and capital leases   41,099  43,700 Less current portion of long-term debt and capital leases   10,934  7,594 Long-term debt and capital leases, net of current portion  $30,165 $36,106  Loans with East West Bank Mortgage Payable—Due January 2016 In December 2010, the Company refinanced an existing mortgage term loan, which had a principal balance outstanding of $4.5million at December 31, 2010. The loan was payable in monthly installments with a final balloon payment of $3.8 million. Theloan was secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex, as well as oneof its buildings at its Chino, California, complex. The loan had a variable interest rate at the prime rate as published by The WallStreet Journal, with a minimum interest rate of 5.00% , and matured in January 2016. Subsequent to the Company’s year-end, the Company refinanced the existing mortgage term loan in January 2016, which had aprincipal balance outstanding of $3.7 million at December 31, 2015. The loan is payable in monthly installments with a finalballoon payment of $3.3 million. The loan is secured by one of the buildings at the Company’s Rancho Cucamonga, California,headquarters complex. The loan has a variable interest rate at the prime rate as published by The Wall Street Journal .Subsequently, the Company entered into a fixed interest rate swap contract on this loan to exchange116 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the variable interest rate for a fixed interest payment over the life of the loan without the exchange of the underlying notional debtamount. The loan bears interest at a fixed rate of 4.39% , and matures in February 2021. Mortgage Payable—Due September 2016 In September 2006, the Company entered into a mortgage term loan in the principal amount of $2.8 million, which matures inSeptember 2016. The loan is payable in monthly installments with a final balloon payment of $2.2 million plus interest. The loanis secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex. The variable interestrate is equal to the three-month LIBOR plus 2.50% . Line of Credit Facility—Due March 2016 In March 2012, the Company entered into a $10.0 million line of credit  facility. Borrowings under the facility are secured byinventory and accounts receivable. Borrowings under the facility bear interest at the prime rate as published by The Wall StreetJournal . This facility was to mature in July 2014. In April 2014, the Company extended the maturity date to March 2016. As ofDecember 31, 2015, the Company did not have any amounts outstanding under this facility. Equipment Loan—Due April 2017 In March 2012, the Company entered into an $8.0 million revolving credit facility. In March 2013, the Company, converted theoutstanding principal balance of $4.9 million into an equipment loan. Borrowings under the facility are secured by equipmentpurchased with debt proceeds. Borrowings under the facility bear interest at the prime rate as published by The Wall StreetJournal plus 0.25% , with a minimum interest rate of 3.50% . This facility matures in April 2017. Equipment Loan—Due January 2019 In July 2013, the Company entered into an $8.0 million line of credit facility. Borrowings under the facility were secured byequipment. The facility bore interest at the prime rate as published in The Wall Street Journal plus 0.25% and was to mature inJanuary 2019.  In January 2015, the Company drew down $6.2 million from the line of credit facility. Subsequently, the facility was thenconverted into an equipment loan with an outstanding principal balance of $6.2 million. Borrowings under the facility are securedby equipment purchased with the debt proceeds. The Company entered into a fixed interest rate swap contract on this facility toexchange the floating rate for a fixed interest payment over the life of the facility without the exchange of the underlying notionaldebt amount. The fair value of the derivative and unrealized loss was immaterial to the Company’s consolidated financialstatements at December 31, 2015. The facility bears interest at a fixed rate of 4.48% and matures in January 2019. As ofDecember 31, 2015, the loan had a book value of $4.7 million, which approximates fair value. The variable interest rate isdeemed to be a Level 2 input for measuring fair value. Loans with Cathay Bank Mortgage Payable—Due April 2021 In March 2007, the Company entered into a mortgage term loan in the principal amount of $5.3 million, which matured inMarch 2014. In April 2014, the Company refinanced the mortgage term loan, which had a principal balance outstanding of $4.6million. The loan is payable in monthly installments with a final balloon payment of $3.9 million.  The loan is secured by thebuilding at the Company’s Canton, Massachusetts location and bears interest at a fixed rate of 5.42% and matures in April 2021.As of December 31, 2015, the loan had a fair value of  $ 4.7 million , compared to a book value of $4.5 million. The fair value ofthe loan was determined by using the interest rate associated with the Company’s mortgage loans with similar terms and collateralthat has variable interest rates. The fair value of debt117 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS obligations is not measured on a recurring basis and the variable interest rate is deemed to be a Level 2 input for measuring fairvalue. Revolving Line of Credit—Due May 2016 In April 2012, the Company entered into a $20.0 million revo lving line of credit facility. Borrowings under the facility aresecured by inventory, accounts receivable, and intangibles held by the Company. The facility bears interest at the prime rate aspublished by The Wall Street Journal with a minimum interest rate of 4.00% . This revolving line of credit was to mature in May2014. In April 2014, the Company modified the facility to extend the maturity date to May 2016. As of December 31, 2015, theCompany did not have any amounts outstanding under this facility. Acquisition Loan with Cathay Bank—Due April 2019  On April 22, 2014, in conjunction with the Merck API Transaction, the Company entered into a secured term loan with CathayBank as lender. The principal amount of the loan is $21.9  million and bears a variable interest rate at the prime rate as publishedby The Wall Street Journal , with a minimum interest rate of 4.00% . Beginning on June 1, 2014 and through the maturity date,April 22, 2019, the Company must make monthly payments of principal and interest based on the then outstanding amount of theloan amortized over a 120 -month period. On April 22, 2019, all amounts outstanding under the loan become due and payable,which would be approximately $12.0  million based upon an interest rate of 4.00% . The loan is secured by 65% of the issued andoutstanding shares of stock in AFP and certain assets of the Company, including accounts receivable, inventory, certaininvestment property, goods, deposit accounts, and general intangibles but not including the Company’s equipment and realproperty. The loan includes customary restrictions on, among other things, the Company’s ability to incur additional indebtedness, paydividends in cash or make other distributions in cash, make certain investments, create liens, sell assets, and make loans. The loanalso includes customary events of defaults, the occurrence and continuation of any of which provide Cathay Bank the right toexercise remedies against the Company and the collateral securing the loan. These events of default include, among other things,the Company’s failure to pay any amounts due under the loan, the Company’s insolvency, the occurrence of any default undercertain other indebtedness or material agreements, and a final judgment against the Company that is not discharged in 30 days. Loans with Seine-Normandie Water Agency In January 2015, the Company entered into three French government loans with the Seine-Normandie water agency in theaggregate amount of €0.6 million, or $0.7 million, subject to currency exchange fluctuations. The life of the loans range betweenthree to six years, and includes annual equal payments and bears no interest over the life of the loans.   As of December 31, 2015, the payment obligation had an aggregate book value of €0.5 million, or $0.5 million, whichapproximates fair value. The fair value of the payment obligation was determined by using the interest rate associated with theCompany’s acquisition loan with Cathay Bank that bears a variable interest rate at the prime rate as published by The Wall StreetJournal , with a minimum interest rate of 4.00%. The fair value of the debt obligation is not measured on a recurring basis and thevariable interest rate is deemed to be a Level 2 input for measuring fair value. Payment Obligation Merck—Due December 2017 On April 30, 2014, in conjunction with the Merck API Transaction, the Company entered into a commitment obligation withMerck, in the principal amount of €11.6 million, or $16.0 million, subject to c urrency exchange fluctuations. The terms of thepurchase price include annual payments over four years and bear a fixed interest rate of 3.00% . The final118 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS payment to Merck relating to this obligation is due December 2017. In December 2015 and 2014, the Company made a principalpayment of €3.2 million, or $3.5 million and €4.9 million, or $6.0 million, respectively. As of December 31, 2015, the payment obligation had a book value of €3.6 million, or $3.9 million, which approximates fairvalue. The fair value of the payment obligation was determined by using the interest rate associated with the Company’sacquisition loan with Cathay Bank that bears a variable interest rate at the prime rate as published by The Wall Street Journal ,with a minimum interest rate of 4.00%. The fair value of the debt obligation is not re-measured on a recurring basis and thevariable interest rate is deemed to be a Level 2 input for measuring fair value. Covenants At December 31, 2015, the Company was in compliance with its debt covenants, which include a minimum current ratio,minimum debt service coverage, minimum tangible net worth, and maximum debt-to-effective-tangible-net-worth ratio,computed on a consolidated basis in some instances and on a separate-company basis in others. At December 31, 2014, theCompany was not in compliance with two of its financial covenants with Cathay Bank. The first one requiring a fixed chargecoverage ratio of 1.2 to 1.0, or greater, and the second one required a minimum debt service coverage ratio of 1.5 to 1.0, orgreater. On March 13, 2015, the Company obtained waivers of these covenants for the period ending December 31, 2014.  Equipment under Capital Leases The Company entered into leases for certain equipment under capital leasing arrangements, which will expire at various timesthrough 2020. The cost of equipment under capital leases was $1.5 million at December 31, 2015 and 2014, respectively. The accumulated depreciation of equipment under capital leases was $0.7 million and $0.4 million at December 31, 2015 and2014, respectively. Depreciation of assets recorded under capital leases is included in depreciation expense in the accompanyingconsolidated financial statements. Long-Term Debt MaturitiesAs of December 31, 2015, the principal amounts of long-term debt maturities during each of the next five fiscal years endingDecember 31 are as follows:      Capital      Debt Leases Total   (in thousands) 2016    $10,639    $333          2017  4,768  331    2018  3,924  159    2019  13,374  33    2020  291  13    Thereafter  7,299  —       40,295  869    Less amount representing interest  —  65      $40,295 $804 $41,099   119 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Income Taxes The Company’s income (loss) before income taxes generated from its United States and foreign operations were:    Year Ended December 31,    2015 2014 2013   (in thousands) Income (loss) before income taxes:                            United States $(4,344) $(12,946) $20,116 Foreign  (6,020)  (5,202)  (2,889) Total income (loss) before taxes $(10,364) $(18,148) $17,227  The Company’s provision (benefit) for income taxes consisted of the following:    Year Ended December 31,   2015 2014 2013   (in thousands) Current provision (benefit):                            Federal $82 $(131) $3,306 State  73  193  541 Foreign  (112)  1,388  104 Total current provision (benefit)  43  1,450  3,951 Deferred provision (benefit):          Federal  (5,222)  (4,309)  2,254 State  (1,250)  (1,699)  227 Foreign  (1,148)  (2,891)  (1,067) Total deferred provision (benefit)  (7,620)  (8,899)  1,414 Total provision (benefit) for income taxes $(7,577) $(7,449) $5,365  A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:    Year Ended December 31,   2015 2014 2013 Statutory federal income tax (benefit) (35.0)%  (35.0)%  35.0%State tax expense, net of federal tax benefit (7.4) (5.4) 2.9 Foreign income tax (24.4) 1.8 0.3 Qualified production activities deduction  — — (3.3) Research and development credits (15.4) (6.4) (9.9) ISO portion of stock options deductions 7.7 4.0 6.3 Other 1.4 — (0.2) Effective tax rate (benefit) (73.1)%  (41.0)%  31.1% 120 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Tax Assets and Liabilities Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’sdeferred tax assets and liabilities are as follows:    December 31,   2015 2014   (in thousands) Deferred tax assets:                   Net operating loss carryforward $8,616 $7,877 State income taxes  300  270 Inventory capitalization and reserve  5,365  6,843 Deferred revenue  584  864 Accrued payroll and benefits  1,793  1,571 Share-based compensation  10,125  8,437 Research and development credits  13,071  9,863 Alternative minimum tax  529  447 Accrued professional fees  987  568 Product return allowance  1,545  1,221 Accrued chargebacks  5,910  4,792 Bad debt reserve  253  67 Intangibles  3,370  3,861 Accrued for workers’ compensation insurance  1,035  864 Total deferred tax assets  53,483  47,545 Deferred tax liabilities:       Depreciation/amortization  15,065  15,649 Intangibles  5,430  4,753 Federal impact of state deferred taxes  3,380  2,910 Other  1,241  937 Total deferred tax liabilities  25,116  24,249 Valuation allowance  (923)  (3,862) Net deferred tax assets $27,444 $19,434  Net Operating Loss Carryforwards and Tax Credits At December 31, 2015, the Company had U.S. federal, California, and other State net operating loss, or NOL carryforwards ofapproximately $11.4 million, $13.2  million, and $1.5  million, respectively. The federal, California and other states losscarryforwards begin to expire in 2034 ,   2030 , and 2030 , respectively. The Company also had foreign NOL carryforwards ofapproximately $9. 9 million which can be used annually with certain limitations and have an indefinite carryforward period.The California and other state NOL carryforwards exclude $15.8 million and $0.1 million, respectively, related to excess taxbenefits from share-based awards. When the related tax benefits from these share-based awards are utilized, the tax benefit ofthese adjustments , which will reduce the amount of income taxes payable , will be offset against additional paid in capital. At December 31, 2015, the Company had federal and California research and development tax credit carryforwards ofapproximately $6.0  million and $10.7  million, respectively. The federal research and development tax credit begins to expire in2031 . The California research and development tax credit has an indefinite carryforward period. The Company121 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS also had a U.S. federal alternative minimum tax credit carryforward of $0.5 million which can be used to offset future regular taxto the extent of the current AMT; the credit has an indefinite carryforward period. The utilization of the NOL and credit carryforwards and other tax attributes could be subject to an annual limitation underSections 382 and 383 of the Internal Revenue Code of 1986 (the “Code”), whereby they could be limited in the event acumulative change in ownership of more than 50% occurs within a three-year period, as defined in the Code. Valuation Allowance In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or allof the deferred tax assets will be realized. Ultimately, the realization of deferred tax assets depends on the existence of futuretaxable income. M anagement considers sources of taxable income such as income in prior carryback periods, future reversal ofexisting deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.   In connection with the AFP purchase accounting in 2014 , the Company recorded a valuation allowance against an intangibledeferred tax asset of €3.2 million, or $4.4 million with an offsetting entry to goodwill, since management did not believe that itwas more likely than not that the deferre d tax asset would be realized. In March 2015, the Company reversed the €3.2 million, or$3.3 million , deferred tax valuation allowance in conjunction with the transfer of AFPs intangible assets from France to the U.S.The difference in U.S. dollars relates to the currency exchange fluctuation, which is recorded in the Company’s accumulatedother comprehensive loss as a foreign currency translation adjustment. In 2015, the Company continued to assess the realizability of the deferred tax assets for AFP. Due to the potential impact ofreduced revenues from the MannKind contract and other factors, the Company determined that it was not more likely than notthat the net deferred tax assets of AFP would be realized and established a full valuation allowance of $0.9 million as ofDecember 31, 2015; therefore, contributing to the recognition of $0.9 million in income tax expense for the year ended December31, 2015. Undistributed Earnings (Losses) from Foreign Operations As of December 31, 2015 and 2014, deferred income taxes have not been provided on the accumulated undistributed losses of theCompany’s foreign subsidiaries of approximately $7.1 million and $10.5 million, respectively. In addition, it is the Company’splan not to repatriate future foreign earnings to the U.S.   It is not practicable to compute the tax on undistributed earnings of theCompany's foreign subsidiaries as of December 31, 2015 since they have accumulated undistributed losses. Uncertain Income Tax Positions A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:    December 31,   2015 2014 2013  (in thousands)Balance at the beginning of the year    $4,783    $4,186 $3,532Additions based on tax positions related to the current year  812  655  766Deductions based on tax audit settlement  —  —  (93)Deductions based on statute of limitations   —  (58)  (19)Balance at the end of the year $5,595 $4,783 $4,186 Included in the balance of unrecognized tax benefits as of December 31, 2015 was $5.0  million that represents the portion thatwould impact the effective income tax rate if recognized. The Company believes that it is reasonably122 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS possible that the total amount of unrecognized tax benefit as of December 31, 2015 will decline by $1.9  million in the next12 months as a result of the expected resolution of a current U.S. state audit. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax provision. For theyears ended December 31, 2015 and 2014, the Company recognized accrued interest of approximately $0.1 million and $0.1 million, respectively, related to its uncertain tax position.The Company and/or one or more of its subsidiaries filed income tax returns in the U.S. federal jurisdiction and various U.S. states and foreign jurisdictions. As of December 31, 201 5 , the Company is not subject to U.S. federal, state, and foreign income taxexaminations for years before 2006. In August 2011, the California FTB commenced an audit of the Company’s 2007 ,   2008 ,and 2009 tax returns; th is audit is currently ongoing. The Company is subject to income tax audit by tax authorities for tax years2012 ,   2013 and 2014 for federal and 2007 to 2014 for states. 15. Stockholders' Equity Common and Preferred Stock In June 2014, the Company completed an initial public offering in which the Company sold 5,840,000 shares of its commonstock, which included 1,200,000 shares of the Company’s common stock pursuant to the underwriters’ exercise of their over-allotment option, at a price to the public of $7.00 per share, resulting in gross proceeds of $40.9 million.  In connection with theoffering, the Company paid $6.2 million in underwriting discounts, commissions, and offering costs, resulting in net proceeds of$34.7 million. The Company’s Certificate of Incorporation, as amended and restated in June 2014 in connection with the closing of its initialpublic offering, authorizes the Company to issue 300,000,000 shares of common stock, $0.0001 par value per share, and20,000,000 shares of preferred stock, $0.0001 par value per share. As of December 31, 2015 and 2014, there were no shares ofpreferred stock issued or outstanding . Equity Plans As of December 31, 2015, the Company had two equity plans, the 2015 Equity Incentive Award Plan, or 2015 Plan, and the 2014Employee Stock Purchase Plan or ESPP. Prior to the adoption of these plans, the Company granted options pursuant to theAmended and Restated 2005 Equity Incentive Award Plan, 2002 Amended and Restated Stock Option/Stock Issuance Plan and,from 1998 through 2001, the Company’s board of directors granted options to purchase shares of its common stock under the KeyEmployee Stock Incentive Plan, the 2001 Employee Incentive Plan, the 2000 Employee Incentive Plan and the 1999 EmployeeIncentive Plan. Upon termination of the predecessor plans, the shares available for grant at the time of termination, and sharessubsequently returned to the plans upon forfeiture or option termination, were transferred to the successor plan in effect at thetime of share return.The Company issues new shares of common stock upon exercise of stock options. The 2015 Equity Incentive Plan In March 2015, the Board of Directors adopted the Company’s 2015 Equity Incentive Plan, or the 2015 Plan, which was approvedby the Company’s stockholders in May 2015 and is set to expire in March 2025. The 2015 Plan is designed to meet the needs of apublicly traded company, including the requirements for granting “performance based compensation” under Section 162(m) ofthe Internal Revenue Code. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restrictedstock, restricted stock units, stock appreciation rights, performance units, performance shares, and other stock or cash awards toemployees of the Company and its subsidiaries, members of the Board of Directors and consultants. 123 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company initially reserved 5,000,000 shares of common stock for issuance under the 2015 Plan. This number will beincreased by the number of shares available for issuance under the Company’s prior equity incentive plans or arrangements thatare not subject to options or other awards, plus the number of shares of common stock related to options or other awards grantedunder the Company’s prior equity incentive plans or arrangements that are repurchased, forfeited, expired, or cancelled on or afterthe effective date of the 2015 Plan. The 2015 Plan also contains an “evergreen provision” that allows for an annual increase in thenumber of shares available for issuance on January 1 of each year during the 10 year term of the 2015 Plan, beginning January 1,2016. The annual increase in the number of shares shall be the lessor of (i) 3,000,000 shares, (ii) two and one-half percen t (   2.5%  ) o f the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares as determi nedby the Board of Directors. As of the effective date, there were 5,300,296 shares available for grant under the 2015 Plan. As of December 31, 2015, the Company reserved an aggregate of 5.4 million shares of common stock for future issuance underthe 2015 Plan. In March 2016, an additional 1,129,962 shares were reserved under the 2015 Plan. Amended and Restated 2005 Equity Incentive Award Plan The Amended and Restated 2005 Equity Incentive Award Plan, or 2005 Plan provided for the grant of incentive stock options, orISOs, nonqualified stock options, or NQSOs, restricted stock awards, restricted stock unit awards, stock appreciation rights, orSARs, dividend equivalents and stock payments to the Company’s employees, members of the Board of Directors andconsultants. Stock options under the 2005 Plan were granted with a term of up to ten years and at prices no less than the fairmarket value of the Company’s common stock on the date of grant. To date, stock options granted to existing employeesgenerally vest over three to five years and stock options granted to new employees vest over four years. The 2005 Plan alsocontained an "evergreen provision" that allowed for an annual increase in the number of shares available for issuance onJanuary 1 of each year during the ten-year term of the 2005 Plan, beginning January 1, 2007. The annual increase in the numberof shares shall be either 2% of the Company’s outstanding shares on the applicable January 1 or a lesser amount determined by itsBoard of Directors.   As of March 2015, consequent to the 2015 Plan becoming effective, awards were no longer being made under the 2005 Plan. 2014 Employee Stock Purchase Plan In June 2014, the Company adopted the Employee Stock Purchase Plan, or ESPP in connection with its initial public offering. Atotal of 2,000,000 shares of common stock are reserved for issuance under this plan. The Company’s ESPP permits eligibleemployees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP,the Company may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods withineach offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased foremployees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stockis purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period oron the date of purchase. The first offering period commenced on February 1, 2015 and ended on November 30, 2015. As of December 31, 2015, theCompany has issued 124,380 shares of common stock under the ESPP and 1,875,620 shares of its common stock remainedavailable for issuance under the ESPP. For the year ended December 31, 2015, the Company recorded ESPP expense of $0.4 million. Share Buyback Program On November 6, 2014 the Company’s Board of Directors authorized a $10.0 million share buyback program, which is expected tocontinue for an indefinite period of time. The primary goal of the program is to offset dilution created by the124 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company’s equity compensation programs. On November 10, 2015, the Company’s Board of Directors authorized an increase of$10.0 million to the Company’s share buyback program. Purchases are being made through the open market and private block transactions pursuant to Rule 10b5-1 plans, privatelynegotiated transactions or other means as determined by the Company’s management and in accordance with the requirements ofthe Secur ities and Exchange Commission. The timing and actual number of shares repurchased will depend on a variety offactors including price, corporate and regulatory requirements , and other conditions. These repurchased shares are accounted forunder the cost method and are included as a component of treasury stock in the Company’s Consolidated Balance Sheets.  Pursuant to the Company’s share repurchase program, the Company purchased 735,679 and 29,400 shares of its common stockduring the years ended December 31, 2015 and 2014, totaling $9.9 million and $0.3 million, respectively. Share-Based Award Activity and Balances The Company accounts for share ‑based compensation payments in accordance with ASC 718, which requires measurement andrecognition of compensation expense at fair value for all share ‑based payment awards made to employees, directors, andnonemployees. Under these standards, the fair value of share ‑based payment awards is estimated at the grant date using anoption-pricing model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisiteservice period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of share ‑based awards andrecognizes share ‑based compensation cost over the vesting period using the strai ght-line single option method. Non ‑vestedstock options held by non-employees are revalued using the Company’s estimate of fair value at each balance sheet date. Options issued under the Company’s 2015 Plan and 2005 Plan, are granted at prices equal to or greater than the fair value of theunderlying shares on the date of grant and vest based on continuous service. The options have a contractual term of five to tenyears and generally vest over a three - to five ‑year period. The fair value of each option is amortized into compensation expenseon a straight ‑line basis between the grant date for the option and the vesting date. The awards of restricted common stock such asRestricted Stock Units, or RSUs are valued at fair value on the date of grant. The Company uses the Black ‑Scholes optionpricing model to determine the fair value of share ‑based awards. The Black ‑Scholes option pricing model has various inputssuch as the estimated common share price, the risk ‑free interest rate, volatility, expected life and dividend yield, all of which areestimates. The Company also records share ‑based compensation expense net of expected forfeitures. The change of any of theseinputs could significantly impact the determination of the fair value of the Company’s options and thus could significantly impactits results of operations. There are no awards with performance conditions and no awards with market conditions.Valuation models and significant assumptions for share ‑based compensation are as follows:·Determining Fair Value. For all equity awards granted after the completion of the Company’s initial publicoffering, the fair value for its underlying common stock is determined using the closing price on the date of grant asreported on the NASDAQ Global Select Market. The Company uses the Black ‑Scholes formula to estimate the fairvalue of its share ‑based payments using a single option award approach. The application of this valuation modelinvolves assumptions that are judgmental and sensitive in the determination of compensation expense. Keyassumptions and estimation methodologies for inputs to the Black ‑Scholes calculation are developed in accordancewith ASC 718. The Company amortizes its share ‑based compensation expense over the requisite service period,which in most cases is the vesting period of the award.  For all equity grants granted, the primary factor in the valuation of equity awards was the fair value of theunderlying common stock at the time of grant. Since the Company’s common stock was not traded in a public stockmarket exchange prior to June 25, 2014, prior to such date the Board of Directors considered125 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS numerous factors including recent cash sales of the Company’s common stock to third-party investors, new businessand economic developments affecting the Company and independent appraisals, when appropriate, to determine thefair value of the Company’s common stock. Independent appraisal reports were prepared using conventionalvaluation techniques, such as discounted cash flow analyses and the guideline company method using revenue andearnings multiples for comparable publicly traded companies, and a calculation of total option proceeds, from whicha discount factor for lack of marketability was applied. This determination of the fair value of the common stockwas performed on a contemporaneous basis. Prior to the Company’s initial public offering, t he Board of Directorsdetermined the Company’s common stock fair market value on a quarterly basis and in some cases more frequentlywhen appropriate. ·Expected Volatility. The Company has limited data regarding company ‑specific historical or implied volatility ofits share price. Consequently, the Company estimates its volatility based on the average of the historical volatilitiesof peer group companies from publicly available data for sequential periods approximately equal to the expectedterms of its option grants. Management considers factors such as stage of life cycle, competitors, size, marketcapitalization and financial leverage in the selection of similar entities. ·Expected Term. The expected term represents the period of time in which the options granted are expected to beoutstanding. The Company estimates the expected term of options granted based on the midpoint between thevesting date and the end of the contractual term under the “short ‑cut” or simplified method permitted by the SECimplementation guidance for “plain vanilla” options. Applying this method, the weighted ‑average expected term ofthe Company’s options is approximately five years. The use of the short ‑cut method is permitted by the SEC, undercertain circumstances, as described in the SEC implementation guidance. The Company will continue to use theshort ‑cut method, as permitted, until it has developed sufficient historical data for employee exercise and post‑vesting employment termination behavior after its common stock has been publicly traded for a reasonable periodof time. ·Forfeitures. The Company estimates forfeitures at the time of grant and revises those estimates in subsequentperiods if actual experience differs from those estimates. For the years ended December 31, 2015, 2014 and 2013,the Company estimated an average overall forfeiture rate of 8% for each year, based on historical forfeitures since1998. Forfeiture rates are separately calculated for its (1) directors and officers, (2) management personnel and(3) other employees. Share ‑based compensation is recorded net of expected forfeitures. The Company willperiodically assess the forfeiture rate and the amount of expense recognized based on estimated historical forfeituresas compared to actual forfeitures. Changes in estimates are recorded in the period they are identified. ·Risk ‑Free Rate. The risk ‑free interest rate is selected based upon the implied yields in effect at the time of theoption grant on U.S. Treasury zero ‑coupon issues with a term approximately equal to the expected life of the optionbeing valued. ·Dividends. The Company does not anticipate paying cash dividends in the foreseeable future. Consequently, theCompany uses an expected dividend yield rate of zero . Tax benefits resulting from tax deductions in excess of the share ‑based compensation cost recognized (excess tax benefits) arerecorded in the statements of cash flows as financing activities. 126 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted-averages for key assumptions used in determining the fair value of options granted during the years endedDecember 31, 2015, 2014, and 2013 are as follows:    Year Ended December 31,   2015 2014 2013 Average volatility 27.1%  29.9%  28.6%Risk-free interest rate 1.3%  1.7%  1.3%Weighted-average expected life in years 4.5 5.0 4.5 Dividend yield rate  —%   —%   —% Stock Options A summary of option activity under all plans for the year ended December 31, 2015 is presented below:         Weighted-Average        Weighted-Average Remaining Aggregate     Exercise Contractual Intrinsic   Options Price Term (Years) Value           (in thousands) Outstanding as of December 31, 2014    11,371,891    $15.12                  Options granted 2,281,786  15.70      Options exercised (1,262,663)  13.06      Options cancelled (73,229)  13.27      Options expired (77,318)  22.26      Outstanding as of December 31, 2015 12,240,467 $15.41 4.35 $14,438 Exercisable as of December 31, 2015 7,038,372 $16.31 3.41 $9,940 (1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of theCompany’s common stock for those awards that have an exercise price below the estimated fair value at December 31, 2015. A summary of option activity under all plans for the year ended December 31, 2014 is presented below:                  Weighted-Average           Weighted-Average Remaining Aggregate     Exercise Contractual Intrinsic   Options Price Term (Years) Value           (in thousands) Outstanding as of December 31, 2013 10,771,755 $15.39      Options granted 1,661,862  15.04      Options exercised (65,000)  10.79      Options cancelled (135,398)  15.74      Options expired (861,328)  18.48      Outstanding as of December 31, 2014 11,371,891 $15.12 4.62 $1,815 Exercisable as of December 31, 2014 6,281,300 $16.95 3.54 $871 (1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of theCompany’s common stock for those awards that have an exercise price below the estimated fair value at December 31, 2014. For the years ended December 31, 2015, 2014, and 2013 ,   the Company recorded stock option expense related to employeesunder all plans of $7.9 million, $6.7 million, and $5.9 million , respectively. 127 (1)(1)Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information relating to option grants and exercises is as follows:    Year Ended December 31,    2015    2014    2013   (in thousands, except per sharedata) Weighted-average grant date fair value $3.45 $4.02 $2.79 Intrinsic value of options exercised  3,247  144   — Cash received  13,502  571  55 Total fair value of the options vested during the year  6,634  6,407  6,067  A summary of the status of the Company’s nonvested options as of December 31, 2015, and changes during the year endedDecember 31, 2015, are presented below:      Weighted-Average     Grant Date   Options Fair Value Nonvested as of December 31, 2014 5,090,591 $3.34 Options granted 2,281,786  3.45 Options vested (2,097,053)  3.16 Options forfeited (73,229)  4.61 Nonvested as of December 31, 2015 5,202,095  3.44  A summary of the status of the Company’s nonvested options as of December 31, 2014, and changes during the year endedDecember 31, 2014, are presented below:      Weighted-Average     Grant Date   Options Fair Value Nonvested as of December 31, 2013 5,617,554 $3.12 Options granted 1,661,862  4.02 Options vested (2,053,427)  3.12 Options forfeited (135,398)  5.60 Nonvested as of December 31, 2014 5,090,591  3.34  As of December 31, 2015, there was $11.4 million of total unrecognized compensation cost, net of forfeitures, related tononvested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over aweighted-average period of 2.0 years and will be adjusted for future changes in estimated forfeitures. Deferred Stock Units/Restricted Stock Units Beginning in 2007, the Company granted deferred stock units, or DSUs, to certain employees and members of the Board ofDirectors with a vesting period of up to five years, and commencing in 2015, such equity was issued as restricted stock units, orRSUs (such RSUs and DSUs are collectively referred to herein as RSUs). The grantee receives one share of common stock at aspecified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of commonstock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to theissuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on theCompany’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is thevesting period. The Company recorded a total expense of $3.9 million, $2.0 million, and $0.6 million for the years endedDecember 31, 2015, 2014, and 2013, respectively, for these RSU awards . 128 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015, there was $8.2 million of total unrecognized compensation cost, net of forfeitures, related to nonvestedRSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-averageperiod of 2.3 years and will be adjusted for future changes in estimated forfeitures. Additionally, prior to the Company’s initial public offering, the Company issued RSUs that were treated as an accountingexchange for expiring stock options, whereby the fair value of the expiring stock options equaled the fair value of the RSUs at thedate of the exchange. As such, the Company did not record any expense related to these award modifications. Information relating to RSU grants and deliveries is as follows:      Total Fair Market     Value of RSUs     Issued   Total RSUs as   Issued Compensation     (in thousands) RSUs outstanding at December 31, 2013 98,495    RSUs granted 456,406 $6,474 RSUs forfeited (994)    RSUs surrendered for taxes (10,670)    Common stock delivered for RSUs (40,227)    RSUs outstanding at December 31, 2014 503,010    RSUs granted 526,707 $7,888 RSUs forfeited (8,711)    RSUs surrendered for taxes (58,909)    Common stock delivered (95,557)    RSUs outstanding at December 31, 2015 866,540    (1)The total FMV is derived from the number of RSUs granted times the current stock price on the date of grant. Equity Awards to Consultants The Company has entered into various consulting agreements with Company stockholders and outside consultants. Consultingexpenses are accrued as services are rendered. Consulting services are paid in cash and/or in common stock or stock options.Share-based compensation expense is recorded over the service period based on the estimated fair market value of the equityaward at the date services are performed or upon completion of all services under the agreement. During the year endedDecember 31, 2015, the Company recorded $0.2 million in share-based compensation related to the issuance of equity awards forservices rendered by consultants. During the year ended December 31, 2014 , the Company recorded an immaterial amount ofshare-based compensation related to the issuance of equity awards for services rendered by consultants. For the year endedDecember 31, 2013, the Company did not record any share-based compensation expense for services rendered by consultants. 129 (1)Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recorded share-based compensation expense under all plans and is included in the Company’s consolidatedstatement of operations as follows:    Year Ended December 31,    2015 2014 2013   (in thousands) Cost of revenues $2,526    $1,678    $1,503 Operating expenses:          Selling, distribution and marketing  192  137  132 General and administrative  9,185  6,800  4,701 Research and development  912  665  699 Total share-based compensation $12,815 $9,280 $7,035   16. Employee Benefits 401(k) Plan The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to adefined percentage of their annual compensation. The Company matches contributions at a rate of 50% on the first 4% ofemployee contributions, or up to 2% of their annual compensation, and pays the administrative costs of the Plan. Employercontributions vest over four years. Total employer contributions for the years ended December 31, 2015, 2014, and 2013 wereapproximately $0.7 million, $0.7 million, and $0.6 million, respectively. Defined Benefit Pension Plan In connection with the Merck API Transaction, the Company assumed an obligation associated with a defined-benefit plan foreligible employees of AFP. This plan provides benefits to the employees from the date of retirement and is based on theemployee’s length of time with the Company. The calculation is based on a statistical calculation combining a number of factorsthat include the employee’s age, length of service, and AFPs turnover rate. The liability under the plan is based on a discount rate of 1.75% as of December 31, 2015 and 2014. The liability is included inaccrued liabilities in the accompanying consolidated balance sheets. The plan is currently unfunded, and the benefit obligationunder the plan was $1.6 million and $1.1 million at December 31, 2015 and 2014, respectively.   Expense under the plan was $0.1million and $0.2 million for the years ended December 31, 2015 and 2014, respectively. For the year ended December 31, 2015,the Company recorded an immaterial amount of unrecognized loss in its accumulated other comprehensive loss related to thechange in actuarial valuation of the Company’s defined benefit pension plan. The Company recorded an unrecognized gain of  $0.2 million in its accumulated other comprehensive loss during the year ended December 31, 2014 related to the change inactuarial valuation of the Company’s defined benefit pension plan. 17. Commitments and Contingencies Distribution Agreement with Allergan plc. In May 2005, the Company entered into an agreement to grant certain exclusive marketing rights for its enoxaparin product toAndrx Pharmaceuticals, Inc., or Andrx, which generally extends to the U.S. retail pharmacy market. To obtain such rights, Andrxmade a non-refundable, upfront payment of $4.5 million to the Company upon execution of the agreement which was classified asdeferred revenues. Under the agreement, the Company is paid a fixed cost per unit sold to Andrx and also shares in the grossprofits (as defined) from Andrx’s sales of the product in the U.S. retail pharmacy market. In November 2006, WatsonPharmaceuticals, Inc., or Watson, acquired Andrx and all of the rights and obligations associated with the agreement. In January2013, Watson adopted Actavis, Inc. as its new global name. In March 2015, Actavis acquired Allergan plc and adopted Allerganplc as its new global name in June 2015. The130 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS agreement has a term that expires in January 2019 and can be extended by Allergan for an additional three years. The agreementmay only be terminated prior to the end of the term by either party in the case of a breach of contract or insolvency of the otherparty, by the Company if Allergan fails to purchase a minimum number of units and by Allergan if an infringement claim is madeagainst Allergan. In January 2012, the Company launched enoxaparin, beginning the seven -year period in which Allergan has the exclusivemarketing rights for the Company’s enoxaparin product in the U.S. retail pharmacy market and the start of the Company’srecognition of the $4.5 million deferred revenue over this period on a straight-line basis. Allergan has an option to renew theagreement for an additional three years. As of December 31, 2015 and 2014, the balance of the deferred revenue was $2.0 millionand $2.6 million, respectively. The Company manufactures its enoxaparin product for the retail market according to demand specifications of Allergan. Uponshipment of enoxaparin to Allergan, the Company recognizes product sales at an agreed transfer price and records the related costof products sold. Based on the terms of the Company’s distribution agreement with Allergan, the Company is entitled to a shareof the ultimate profits based on the eventual net revenue from enoxaparin sales by Allergan to the end user less the agreed transferprice originally paid by Allergan to the Company. Allergan provides the Company with a quarterly sales report that calculates theCompany’s share of Allergan enoxaparin gross profit. The Company records its share of Allergan gross profit as a component ofnet revenue. Supply Agreement with MannKind Corporation On July 31, 2014, the Company entered in a supply agreement with MannKind Corporation, or MannKind, pursuant to which theCompany will manufacture for and supply to MannKind certain quantities of recombinant human insulin, or RHI, for use inMannKind’s product Afrezza . Under the terms of the supply agreement, the Company will be responsible for manufacturing theRHI in accordance with MannKind’s specifications and agreed-upon quality standards. MannKind has agreed to purchase annualminimum quantities of RHI under the supply agreement of an aggregate amount of approximately €120.1 million, orapproximately $146.0 million, in calendar years 2015 through 2019.  MannKind paid a non-refundable reservation fee to the Company in the amount of €11.0 million, or approximately $14.0 millionupon entry into the agreement.  Under the agreement, the non-refundable reservation fee was considered as partial payment forthe purchase commitment quantity for 2015. The Company classified the amount as deferred revenue. As of December 31, 2014,the full amount of the deferred revenue has been recognized. Unless earlier terminated, the term of the supply agreement expires on December 31, 2019, and can be renewed for additional,successive two -year terms upon 12 month’s written notice given prior to the end of the initial term or any additional two-yearterm. MannKind and the Company each have customary termination rights, including termination for material breach that is notcured within a specific time frame or in the event of liquidation, bankruptcy, or insolvency of the other party. In addition,MannKind may terminate the supply agreement upon two years’ prior written notice to the Company without cause or upon 30days prior written notice to the Company if a controlling regulatory authority withdraws approval for Afrezza ; provided,however, in the event of a termination pursuant to either of these scenarios, the provisions of the supply agreement requireMannKind to pay the full amount of all unpaid purchase commitments due over the initial term within 60 calendar days of theeffective date of such termination.  In January 2015, the Company entered into a supply option agreement with MannKind, pursuant to which MannKind will havethe option to purchase RHI, for use in MannKind’s product Afrezza , in addition to the amounts specified in the July 2014supply agreement. Under the agreement, MannKind has the option to purchase additional RHI in calendar years 2016 through2019. In the event MannKind elects not to exercise its minimum annual purchase option for any year, MannKind shall pay theCompany a capacity cancellation fee. By mutual agreement, MannKind did not purchase the full contractually obligated amount in 2015. The 2015sales of131 ® ® ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RHI to MannKind were $ 20 . 8 million.   The Company is currently in discussions with MannKind regardingthe timing of future purchases. In October 2015, MannKind informed the Company they were not going toexercise the option to purchase additional quantities of RHI for 2016 under the option agreement.  Accordingly ,MannKind paid the Company a capacity cancellation fee in 2015 for 2016. The Company recognized thispayment as revenue in 2015. Collaboration agreement with a medical device manufacturer The Company has entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery systemto be used by the Company for one of its pipeline products. As of December 31, 2015, the Company has paid an upfront paymentof $0.5 million and $0.4 million in milestone payments under this agreement, which was classified as research and developmentexpense. The Company is obligated to pay up to an additional $1.7 million if certain milestones are met. If the medical devicemanufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receiveappropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical devicemanufacturer for a minimum purchase of 1.0 million units during the first 12 months. Operating Lease Agreements The Company leases real and personal property, in the normal course of business, under various non-cancelable operating leases.The Company, at its option, can renew a substantial portion of its leases, at the market rate, for various renewal periods rangingfrom one to six years. Rental expense under these leases for the years ended December 31, 2015, 2014 and 2013 wasapproximately $3.3 million, $3.1 million, and $3.1 million, respectively.     Future minimum rental payments under operating leases that have initial or remaining non-cancelable lease terms in excess of12 months for fiscal years ending December 31 are as follows:    Operating   Leases   (in thousands) 2016    $3,028 2017  2,838 2018  2,094 2019  1,538 2020  699   $10,197  Purchase Commitments As of December 31, 2015, the Company has entered into commitments to purchase equipment and raw materials for an aggregateamount of approximately $11.0 million. The Company anticipates that most of these commitments will be fulfilled by 2017. The Company entered into agreements with a Chinese governmental entity to acquire land-use rights to real property in Nanjing,China. Under the terms of these agreements, the Company committed to invest capital in its wholly-owned subsidiary, ANP, andto develop these properties as an API manufacturing facility for the Company’s pipeline products. In conjunction with theseagreements, ANP modified its business license on July 3, 2012 , to increase its authorized capital. As of December 31, 2015, theCompany had invested approximately $49.0 million in ANP of its registered capital commitment of $61.0 million. The Companyhas committed to invest an additional $12.0 million in ANP by December 2017. This investment in ANP will result in cash beingtransferred from the U.S. parent company to ANP.   Per these agreements, in January 2010, the Company acquired certain land-use rights with a carrying value of $1.2 million. Inaddition, the Company purchased additional land-use rights in November 2012 for $1.3 million. The Company132 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS committed to spend approximately $15.0 million in land development. The agreements require the construction of fixed assets onthe property and specified a timetable for the construction of these fixed assets. The current pace of development of the propertyis behind the schedules described in the purchase agreements and, per the purchase agreement, potential monetary penalties couldresult if the development is delayed or not completed in accordance with the guidelines stated in the purchase agreements. 18. Litigation   Enoxaparin Patent Litigation In September 2011, Momenta Pharmaceuticals, Inc., or Momenta, a Boston ‑based pharmaceutical company, and Sandoz Inc., orSandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patentsrelated to testing methods for batch release of enoxaparin, which the Company refers to as the “‘886 patent” and the “‘466patent.” The lawsuit was filed in the United States District Court for the District of Massachusetts, or the District Court. InOctober 2011, the District Court issued a preliminary injunction barring the Company from selling its generic enoxaparin productand also requiring Momenta and Sandoz to post a $100.1  million bond. The preliminary injunction was stayed by the UnitedStates Court of Appeals for the Federal Circuit, or the Federal Circuit, in January 2012, and reversed by the Federal Circuit inAugust 2012. In January 2013, the Company moved for summary judgment of non ‑infringement of both patents. Momenta and Sandozwithdrew their allegations as to the ‘466 patent, and in July 2013, the District Court granted the Company’s motion for summaryjudgment of non ‑infringement of the ‘886 patent and denied Momenta and Sandoz’s motion for leave to amend infringementcontentions. On January 24, 2014, the District Court judge entered final judgment in the Company’s favor on both patents.Momenta and Sandoz also filed a motion to collect attorney’s fees and costs relating to a discovery motion which the DistrictCourt granted. On January 30, 2014, Momenta and Sandoz filed a notice of appeal to the Federal Circuit appealing the court’sfinal judgment including summary judgment denying Momenta and Sandoz’s motion for leave to amend their infringementcontentions. The Company intends to attempt to collect the $100.1 million bond posted by Momenta and Sandoz following adecision on the merits in the event the Company prevails. Following appeal briefing filed by the parties, t he Federal Circuit held oral argument on May 4, 2015. On November 10, 2015,the Federal Circuit panel affirmed-in-part and vacated-in-part the decision of the District Court granting summary judgment ofnon-infringement as to the Company, and it remanded the case to the District Court for further proceedings consistent with itsopinion. The Federal Circuit panel affirmed the District Court’s holding in the Company’s favor that the Company does notinfringe under 35 U.S.C. 271(g), and the panel vacated the grant of summary judgment to the extent it was based on thedetermination that the Company’s activities fall within the 35 U.S.C. 271(e)(1) safe ha rbor.  The Federal Circuit panel also left tothe District Court’s discretion whether to reconsider on remand its denial of leave for Momenta and Sandoz to amend t heirinfringement contentions. On January 11, 2016, the Company filed a Petition for Rehearing En Banc with the Federal Circuit. OnFebruary 17, 2016, the Federal Circuit denied the Company’s Petition, and the Federal Circuit issued its mandate on February 24,2016, whereby the case will return to the District Court for further proceedings.  The Company intends to vigorously defend thiscase on further appeal and/or in the District Court.   False Claims Act Litigation In January 2009, the Company filed a qui tam complaint in the U.S. District Court for the Central District of California, or theDistrict Court, alleging that Aventis Pharma S.A., or Aventis, through its acquisition of a patent through false and misleadingstatements to the U.S. Patent and Trademark Office, as well as through false and misleading statements to the FDA, overchargedthe federal and state governments for its Lovenox product. If the Company is successful in this litigation, it could be entitled to aportion of any damage award that the government ultimately may recover from Aventis. In October 2011, the District Courtunsealed the Company’s complaint. 133 ® Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On February 28, 2014, Aventis filed a motion for summary judgment on the issue of the adequacy of the Company’s notice letterto the government, and the District Court denied Aventis’ motion for summary judgment in a final order it issued on May 12,2014. On June 9, 2014, at Aventis’ request, the District Court issued an order certifying for appeal its order denying Aventis’motion for summary judgment. On June 9, 2014, Aventis filed with the United States Court of Appeals for the Ninth Circuit, orthe Ninth Circuit, a petition for permission to appeal the District Court’s denial of Aventis’ motion for summary judgment, andthe Company filed an opposition to Aventis’ petition on June 19, 2014. On August 22, 2014, the Ninth Circuit granted Aventis’petition. The parties have completed and filed their respective appeal briefs with the Ninth Circuit. A date for oral argument hasnot been set by the Ninth Circuit. The District Court set an evidentiary hearing for July 7, 2014 on the “original source” issue, a key element under the False ClaimsAct. The evidentiary hearing was conducted as scheduled, from July 7, 2014 through July 10, 2014. On July 13, 2015, the DistrictCourt issued a ruling concluding that the Company is not an original source under the False Claims Act, and the District Courtentered final judgment dismissing the case for lack of subject matter jurisdiction. On July 27, 2015, Aventis filed a request forattorneys’ fees with the District Court, and on August 3, 2015, the Company filed ob jections to Aventis’s request. On July 20,2015, the Company filed with the Ninth Circuit a notice of appeal of the District Court’s dismissal of the case, and Aventis filed anotice of cross-appeal on August 5, 2015. The Company’s opening appeal brief is due to be filed with the Ninth Circuit by March28, 2016. On November 12, 2015, Aventis filed a pleading asking that the District Court impose various monetary penalties andfines against the Company, including disgorgement of enoxaparin revenues and attorneys’ fees expended by Aventis in thisaction, based on Aventis’s allegations that the Company engaged in sanctionable conduct. On November 23, 2015, the DistrictCourt issued an order setting forth a procedure for sanctions proceedings as to the Company as well as its outside counsel. OnDecember 24, 2015, the Company filed a pleading with the District Court opposing the imposition of sanctions, and on January20, 2016, Aventis filed a response pleading further pressing for the imposition of sanctions. While the outcome of litigation isinherently uncertain, the Company believes Aventis’s request is without merit, and it intends to vigorously defend against it. California Employment Litigation On January 6, 2015, the Company received a formal demand from Plaintiff’s counsel in an employment related lawsuit captionedEva Hernandez v. International Medication Systems Limited, in connection with a complaint originally filed on February 4, 2013in the Superior Court of California County of Los Angeles, or the Court, by plaintiff Eva Hernandez on behalf of herself andothers similarly situated. Plaintiff’s complaint included alleged violations of the California Labor Code stemming from theCompany’s alleged timekeeping practices, as well as other similar and related claims brought under California law. In thecomplaint, Plaintiff sought damages and related remedies under California law, as well as various penalty payments under theCalifornia Labor Code, on behalf of herself and others similarly situated. On April 7, 2015, solely to resolve the dispute,minimize disruption to the Company due to ongoing litigation, and other similar and related factors (but unrelated to the allegedmerits of Plaintiff’s claims), the Company reached an agreement in principle to settle this matter on a class wide basis for a totalamount of $3.2 million, plus applicable payroll taxes. The Joint Stipulation of Settlement as executed by the parties was filed withthe Court on June 2, 2015. On July 1, 2015, the Court preliminarily approved the settlement, and on November 5, 2015, the Courtentered an order granting final approval of the settlement. Momenta/Sandoz Antitrust Litigation On September 17, 2015, the Company initiated a lawsuit by filing a Complaint in the Central District of California againstMomenta and Sandoz. The Company’s c omplaint generally asserts that Momenta and Sandoz have engaged in certain types ofillegal, monopolistic, and anticompetitive conduct giving rise to various causes of action against them. On December 9, 2015,Defendants filed a motion to dismiss and a motion to transfer the case to the District of Massachusetts. On January 4, 2016, theCompany filed oppositions to both motions. On January 26, 2016, the Court granted Defendants’ motion to transfer and did notrule on Defendants’ motion to dismiss. Accordingly, the case was transferred to the District of Massachusetts and is currentlyawaiting further action by the District Court. On February 9, 2016, the Company filed a writ of mandamus with the Ninth CircuitCourt of Appeals to attempt to appeal the Court’s134 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS granting of Defendants’ motion to transfer to the District of Massachusetts. Other Litigation The Company is also subject to various other claims and lawsuits from time-to-time arising in the ordinary course of business.The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amountof the loss can be reasonably e stimated. In the opinion of management, the ultimate resolution of any such matters is notexpected to have a materially adverse effect on its financial position, results of operations, or cash flows; however, the results oflitigation and claims are inherently unpredictable and the Company’s view of these matters may change in the future. Regardlessof the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion ofmanagement resources, and other factors. 19. Subsequent Event s Mortgage Payable with East West Bank—Due February 2021 In January 2016, the Company refinanced the existing mortgage term loan with East West Bank, which had a principal balanceoutstanding of $3.7 million at December 31, 2015. The loan is payable in monthly installments with a final balloon payment of$3.3 million. The loan is secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarterscomplex. The loan has a variable interest rate at the prime rate as published by The Wall Street Journal . Subsequently, theCompany entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interestpayment over the life of the loan without the exchange of the underlying notional debt amount. The loan bears interest at a fixedrate of 4.39% , and matures in February 2021. Acquisition of Nanjing Letop Medical Technology Co. Ltd. In January 2016, the Company’s subsidiary ANP acquired Nanjing Letop Medical Technology Co. Ltd. or Letop, for $0.7million.  Letop had previously supplied ANP with intermediates used in making various active pharmaceutical ingredients. TheCompany has concluded that this transaction will be accounted for as a business combination in accordance with ASC 805. Acquisition of fourteen injectable products from Hikma Pharmaceuticals PLC In March 2016, the Company acquired fourteen ANDAs, representing eleven different injectable chemical entities from HikmaPharmaceuticals PLC for $4.0 million.  The Company plans to transfer the products to its facilities in California, which willrequire FDA approval before the products can be launched. 135 Table of ContentsAMPHASTAR PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  20. Quarterly Financial Data (Unaudited)    2015 Quarters   First Second Third Fourth Net revenues             Finished pharmaceutical products $50,872 $50,075 $57,902 $66,092 API  6,014  3,778  5,966  10,820 Total net revenues $56,886 $53,853 $63,868 $76,912 Gross profit             Finished pharmaceutical products $12,853 $12,634 $19,302 $29,357 API  427  684  (1,724)  3,814 Total gross profit $13,280 $13,318 $17,578 $33,171               Net income (loss) $(665) $(6,647) $(3,008) $7,533               Weighted-average shares used to compute net income (loss) per share             Basic  44,601  44,849  45,310  45,085 Diluted  44,601  44,849  45,310  46,709 Net income (loss) per share             Basic $(0.01) $(0.15) $(0.07) $0.17 Diluted $(0.01) $(0.15) $(0.07) $0.16      2014 Quarters   First Second Third Fourth Net revenue             Finished pharmaceutical products $45,870 $48,901 $53,729 $49,980 API  —  102  5,982  5,897 Total net revenues $45,870 $49,003 $59,711 $55,877 Gross profit             Finished pharmaceutical products $12,509 $14,961 $12,122 $13,132 API  —  35  (331)  (1,172) Total gross profit $12,509 $14,996 $11,791 $11,960               Net loss $(1,619) $(1,180) $(5,379) $(2,521)               Weighted-average shares used to compute net loss per share             Basic  38,769  39,767  44,644  44,648 Diluted  38,769  39,767  44,644  44,648 Net loss per share             Basic $(0.04) $(0.03) $(0.12) $(0.06) Diluted $(0.04) $(0.03) $(0.12) $(0.06)  Net income   ( loss ) per share amounts for the fiscal quarters have been calculated independently and may not in the aggregateequal the amount for the full year. During the fourth quarter of 2015, the Company identified an immaterial error in each of its previously reported quarters of 2015,primarily pertaining to the result of not recognizing non-operating expense for certain foreign currency trans actions . TheCompany corrected the immaterial error in the fourth quarter of 2015 , resulting in a decrease to net income of $1.1 million .Based on management's evaluation of the materiality of the error from a qualitative and quantitative perspective as required byauthoritative guidance, the Company concluded that correcting the error had no material impact on any of the Company's  previously issued interim financial statements and had no effect on the trend of financial results. 136  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresOur management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of theeffectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)under the Exchange Act of 1934, as amended, as of the end of the period covered by this Annual Report on Form 10-K. Based onthis evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls andprocedures were not effective at the reasonable level of assurance due to a material weakness in internal control over financialreporting discussed below (a)  to ensure that information that we are required to disclose in reports that we file or submit underthe Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and(b) to include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us inreports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Management does not expect their disclosure controls and procedures to prevent all errors and all fraud and no evaluation ofcontrols can provide absolute assurance that all control issues and fraud will be prevented. Additionally, over time, a control maybecome inadequate because of changes in conditions, therefore fraud may occur or misstatements may not be detected.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term isdefined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of senior management,including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control overfinancial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission in 2013. Based on the evaluation under that framework and applicable SEC rules, ourmanagement concluded that our internal control over financial reporting was not effective as of December 31, 2015 .A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that thereis a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented ordetected on a timely basis. For the year ended December 31, 2015, we identified a material weakness in our internal control overfinancial reporting in the area of non-standard and complex transactions. The accounting for certain non-standard and complextransactions were not analyzed and/or reviewed in sufficient detail by knowledgeable personnel to reach the appropriateaccounting conclusion to properly record the transaction. The number of errors identified and the commonality of the root causeof the adjustments (namely, inadequate resources to provide for a more thorough and precise review in these areas), leads us toconclude that there is a material weakness in internal controls.  Recognizing this material weakness and the resulting errorsidentified, management performed additional analyses and supplementary review procedures and has concluded that the effects ofthese errors were not material to any prior year or prior quarters’ previously reported amounts. Despite the existence of thismaterial weakness, we believe the consolidated financial statements included in this Annual Report on Form 10-K present, in allmaterial respects, our financial position, results of operations, comprehensive loss and cash flows for the periods presented inconformity with U.S. generally accepted accounting principles.Remediation Plan for Material Weakness We are preparing a remediation plan concerning the material weakness described above. Our remediation efforts are in processand have not yet been completed. The remediation efforts will focus on addressing the underlying causes of the material weaknessand will include hiring additional accounting and finance personnel with technical accounting and137  financial reporting experience, enhancing and segregating duties within our accounting and finance department, and enhancingour internal review procedures during the financial statement close process. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internalcontrol over financial reporting due to an exemption established pursuant to the JOBS Act for “emerging growth companies.”Changes in Internal Control Over Financial ReportingOur management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the changes in our internalcontrol over financial reporting during the year ended December 31, 2015. We determined that there were no significant changesin our internal control over financial reporting during the year ended December 31, 2015, that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other Information.None.138  PART IIIItem 10. Directors, Executive Officers and Corporate Governance.Information required by this item will be included in our Proxy Statement for our 2016 Annual Meeting of Stockholders to befiled within 120 days after our fiscal year end of December 31, 2015, or 2016 Proxy Statement, and is incorporated by referenceinto this Annual Report on Form 10-K.Item 11. Executive Compensation.Information required by this item will be included in our 201 6 Proxy Statement and is incorporated by reference into this AnnualReport on Form 10-K .Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Information required by this item will be included in our 201 6 Proxy Statement and is incorporated by reference into this AnnualReport on Form 10-K .Item 13. Certain Relationships and Related Transactions, and Director Independence.Information required by this item will be included in our 201 6 Proxy Statement and is incorporated by reference into this AnnualReport on Form 10-K .Item 14. Principal Accountant Fees and Services.Information required by this item will be included in our 201 6 Proxy Statement and is incorporated by reference into this AnnualReport on Form 10-K .139  PART IVItem 15. Exhibits and Financial Statement Schedules.(a) (1) Financial Statements filed as part of this report are listed in Part II, Item 8 of this report.(2) No other financial schedules have been included because they are not applicable, not required or because required  information is included in the consolidated financial statements or notes thereto.(b) The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K . Exhibit No. Description   3.1Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3. 1 to the Company’sCurrent Report on Form 8-K filed with the SEC on July 1 , 2014)  3.2Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statementon Form S-1 filed with the SEC on May 20, 2014)  4.1Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014) 10.1 +Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 toAmendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.2 +2002 Stock Option/Stock Issuance Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.3 +Form of Notice of Stock Option Grant under the Amended 2002 Stock Option/Stock Issuance Plan (incorporatedby reference to Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed withthe SEC on June 5, 2014)10.4 +Amended and Restated 2005 Equity Incentive Award Plan (incorporated by reference to Exhibit 10.4 toAmendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.5 +Form of Stock Option Grant Notice and Stock Option Agreement under the Amended and Restated 2005 EquityIncentive Award Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Company’sRegistration Statement on Form S-1 filed with the SEC on June 5, 2014)10.6 +Form of Deferred Stock Unit Notice of Grant and Deferred Stock Unit Agreement under the Amended andRestated 2005 Equity Incentive Award Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.7†Distribution Agreement, dated May 2, 2005, between Amphastar Pharmaceuticals, Inc. and AndrxPharmaceuticals, Inc., as amended (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.8Business Loan Agreement, dated December 31, 2010, between International Medication Systems, Limited andEast West Bank, as amended (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company’sRegistration Statement on Form S-1 filed with the SEC on June 5, 2014)10.9Revolving Loan and Security Agreement, dated April 10, 2012, between Amphastar Pharmaceuticals, Inc. andCathay Bank (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Company’s RegistrationStatement on Form S-1 filed with the SEC on June 5, 2014)10.10Business Loan Agreement, dated July 5, 2013, between International Medication Systems, Limited, AmphastarPharmaceuticals, Inc. and East West Bank (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)140  10.11Registration Rights Agreement, dated February 4, 2005, between Amphastar Pharmaceuticals, Inc. and LotusChina Fund, L.P. (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Company’s RegistrationStatement on Form S-1 filed with the SEC on June 5, 2014)10.12Standard offer, Agreement and Escrow Instructions for Purchase of Real Estate, dated October 2, 2012, amongAmphastar Pharmaceuticals, Inc., Jack Y. Zhang and Mary Z. Luo (incorporated by reference to Exhibit 10.12 toAmendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.13◊Transfer Contract for the Right to the Use of State-owned Land, dated December 29, 2009, between AmphastarNanjing Pharmaceuticals Co., Ltd. and Nanjing Xingang Hi-Tech Company Limited (incorporated by reference toExhibit 10.13 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC onJune 5, 2014)10.14◊Investment Agreement, dated July 5, 2010, between Amphastar Nanjing Pharmaceuticals Co., Ltd. and theManagement Committee of the Nanjing Economic and Technological Development Zone (incorporated byreference to Exhibit 10.14 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed withthe SEC on June 5, 2014)10.15◊Transfer Contract for the Right to the Use of State-owned Land, dated December 31, 2010, between AmphastarNanjing Pharmaceuticals Co., Ltd. and Nanjing Xingang Hi-Tech Company Limited. (incorporated by reference toExhibit 10.15 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC onJune 5, 2014)10.16†Long-Term Supply Agreement, dated November 30, 2008 between Qingdao Jiulong Biopharmaceutical Co., Ltd.and International Medication Systems, Limited (incorporated by reference to Exhibit 10.16 to Amendment No. 1to the Company’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014)10.17 +2014 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to theCompany’s Registration Statement on Form S-1 filed with the SEC on June 5, 2014) 10.18Asset Purchase Agreement, dated April 30, 2014, among Diosynth France, Amphastar France PharmaceuticalsSAS and Schering-Plough (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement onForm S-1 filed with the SEC on May 20, 2014)10.19Loan Agreement, dated April 22, 2014, between Amphastar Pharmaceuticals, Inc. and Cathay Bank (incorporatedby reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 filed with the SEC on May20, 2014)10.20Promissory Note, dated April 22, 2014, by Amphastar Pharmaceuticals, Inc. payable to Cathay Bank in theoriginal principal sum of $21,900,000 (incorporated by reference to Exhibit 10.20 to the Company’s RegistrationStatement on Form S-1 filed with the SEC on May 20, 2014)10.21 +Employment Agreement, dated May 19, 2014, between Amphastar Pharmaceuticals, Inc. and Jack Zhang(incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1 filed with theSEC on May 20, 2014)10.22 +Employment Agreement, dated May 19, 2014, between Amphastar Pharmaceuticals, Inc. and Mary Luo(incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1 filed with theSEC on May 20, 2014)10.23 +Employment Agreement, dated May 19, 2014, between Amphastar Pharmaceuticals, Inc. and Jason Shandell(incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1 filed with theSEC on May 20, 2014)10.2 4+Employment Agreement, dated March 11, 2014, between Amphastar Pharmaceuticals, Inc. and William Peters(incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1 filed with theSEC on May 20, 2014)10. 25 †Supply Agreement, dated July 31, 2014, between Mann K ind Corporation and Amphastar FrancePharmaceuticals, S.A.S. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement onForm 10-Q filed with the SEC on November 13, 2014)141  10.2 6First Amendment to Supply Agreement, dated October 31, 2014, by and between MannKind Corporation,Amphastar France Pharmaceuticals, S.A.S., and Amphastar Pharmaceuticals, Inc. (incorporated by reference toExhibit 10.1 to the Company’s Registration Statement on Form 10-Q filed with the SEC on November 13, 2014)10.27+2015 Equity Incentive Plan and forms of agreement thereunder (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed with the SEC on June 1, 2015)10.28Business Loan Agreement, dated January 28, 2016, between Amphastar Pharmaceuticals, Inc. and East West Bankin the original principal sum of $3,724,841.21.1Subsidiaries of the Company23.1Consent of Independent Registered Public Accounting Firm31.1Certification of Chief Executive Officer p ursuant to Rules 13a-14(a) and 15d-14(a) of the Securities ExchangeAct of 1934 , as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2Certification of Chief Financial Officer p ursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Actof 1934 , as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1#Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as a dopted pursuant to Section 906of the Sarbanes-Oxley Act of 200232.2#Certification of Chief Financial Officer p ursuant to 18 U.S.C. Section 1350, as a dopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002101.INSXBRL Instance Document101.SCHXBRL Tax onomy Extension Schema Document101.CALXBRL Taxonomy Extensio n Calculation Linkbase Document101.LABXBRL Taxonomy Ex tension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document101.DEFXBRL Taxonomy Extensio n Definitions Linkbase Document # The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemedincorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including thisReport), unless the Registrant specifically incorporates the foregoing information into those documents by reference. + Indicates a management contract or compensatory plan or arrangement. ◊ English translation of original Chinese document. † Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and file separately with theSEC. 142  SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.   AMPHASTAR PHARMACEUTICALS, INC.   (Registrant) By: /s/ JACK Y. ZHANG   Jack Y. Zhang   Chief Executive Officer   (Principal Executive Officer)  Date : March 15 , 201 6   AMPHASTAR PHARMACEUTICALS, INC.   (Registrant) By: /s/ WILLIAM J. PETERS   William J. Peters   Chief Financial Officer   (Principal Financial and Accounting Officer)  Date : March 15 , 201 6 143  POWER OF ATTORNEYEach person whose signature appears below constitutes and appoints Jack Y. Zhang and William J. Peters, and each of them, ashis or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his orher name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and tofile the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform eachand every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or shemight or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their orhis substitutes, may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following personson behalf of the registrant and in the capacities and on the date indicated: Signature Title Date       /s/ JACK Y. ZHANG Chief Executive Officer and Director March 15 , 201 6 Jack Yongfeng Zhang (Principal Executive Officer)         /s/ MARY Z. LUO Chairman, Chief Operating Officer March 15 , 201 6 Mary Z. Luo and Director         /s/ WILLIAM J. PETERS Chief Financi al Officer (Principal March 15 , 201 6 William J. Peters Financial and Accounting Officer)         /s/ JASON B. SHANDELL President and Director March 15 , 201 6 Jason B. Shandell           /s/ RICHARD KOO Director March 15 , 201 6 Richard Koo           /s/ HOWARD LEE Director March 15 , 201 6 Howard Lee           /s/ FLOYD PETERSEN Director March 15 , 201 6 Floyd Petersen           /s/ RICHARD PRINS Director March 15 , 201 6 Richard Prins           /s/ STEPHEN SHOHET Director March 15 , 201 6 Stephen Shohet           /s/ MICHAEL A. ZASLOFF Director March 15 , 201 6 Michael A. Zasloff       144Exhibit 10.28BUSINESS LOAN AGREEMENT  Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731THIS BUSINESS LOAN AGREEMENT dated January 8, 2016, is made and executed between Amphastar Pharmaceuticals, Inc. ("Borrower") andEast West Bank  ("Lender") on the following terms and conditions.  Borrower has received prior commercial loans from Lender or has applied toLender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or scheduleattached to this Agreement.  Borrower understands and agrees that:  (A)  in granting, renewing, or extending any Loan, Lender is relying uponBorrower's representations, warranties, and agreements as set forth in this Agreement;  (B)  the granting, renewing, or extending of any Loan byLender at all times shall be subject to Lender's sole judgment and discretion; and  (C)  all such Loans shall be and remain subject to the terms andconditions of this Agreement.TERM.  This Agreement shall be effective as of January 8, 2016, and shall continue in full force and effect until such time as all of Borrower's Loans in favor ofLender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties mayagree in writing to terminate this Agreement.CONDITIONS PRECEDENT TO EACH ADVANCE.  Lender's obligation to make the initial Advance and each subsequent Advance under this Agreementshall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents.  Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lendersecurity interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insuranceas required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substancesatisfactory to Lender and Lender's counsel.Borrower's Authorization.  Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing theexecution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions,authorizations, documents and instruments as Lender or its counsel, may require.Payment of Fees and Expenses.  Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable asspecified in this Agreement or any Related Document.Representations and Warranties.  The representations and warranties set forth in this Agreement, in the Related Documents, and in any document orcertificate delivered to Lender under this Agreement are true and correct.No Event of Default.  There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement orunder any Related Document.REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of eachdisbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:Organization.  Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and byvirtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business,having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is,and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on itsbusiness or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presentlyengaged or presently proposes to engage. Borrower maintains an office at 11570 6th Street, Rancho Cucamonga, CA 91730. Unless Borrower hasdesignated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning theCollateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower'sname. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with allregulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower andBorrower's business activities.Assumed Business Names.  Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used byBorrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business:  None.Authorization.  Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by allnecessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles ofincorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation,court decree, or order applicable to Borrower or to Borrower's properties.Financial Information.  Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as ofthe date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recentfinancial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.Legal Effect.  This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered willconstitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.Properties.  Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and asaccepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower'sproperties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All ofBorrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least thelast five (5) years.Hazardous Substances.  Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the periodof Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release ofany Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe thatthere has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any ofthe Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor anytenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release anyHazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal,state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents toenter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this sectionof the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed tocreate any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein arebased on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases andwaives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any suchlaws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenseswhich Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use,generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of thissection of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expirationor satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure orotherwise.Litigation and Claims.  No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borroweris pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other thanlitigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.Taxes.  To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes,assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in theordinary course of business and for which adequate reserves have been provided.Lien Priority.  Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, orpermitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower'sLoan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.Binding Effect.  This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well asupon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:Notices of Claims and Litigation.  Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) allexisting and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which couldmaterially affect the financial condition of Borrower or the financial condition of any Guarantor.Financial Records.  Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and auditBorrower's books and records at all reasonable times. Financial Statements.  Furnish Lender with the following:Additional Requirements.  Borrower understands and agrees that while this Agreement is in effect, Borrower will maintain a financial conditionindicated by the following statements at all times, unless otherwise noted:Annual Statements . As soon as available, but in no event later than one hundred fifty (150) days after the end of each fiscal year, Borrower shallprovide Lender with Borrower's balance sheet, income and expense statements, reconciliation of net worth and statement of cash flows, with notesthereto for the year ended, audited by a certified public accountant satisfactory to Lender.All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, andcertified by Borrower as being true and correct.Additional Information.  Furnish such additional information and statements, as Lender may request from time to time.Financial Covenants and Ratios.  Comply with the following covenants and ratios:Additional Requirements.  Borrower understands and agrees that while this Agreement is in effect, Borrower will maintain a financial conditionindicated by the following ratios at all times, unless otherwise noted:Debt Coverage Ratio . Maintain a Debt Coverage Ratio (defined as earnings before interest, taxes, depreciation, and amortization ("EBITDA") pluspre-launched inventory and stock option expenses minus dividends to be divided by current portion of long term debt (CPLTD) plus interest of notless than 1.45 to 1. To be tested annually and is based on consolidated financial statement of Amphastar Pharmaceuticals, Inc.Cash on Hand. Maintain a cash on hand of no less than $15,000,000.00, if DCR violation is to be waived.Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made inaccordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.Insurance.  Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower'sproperties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, willdeliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not becancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providingthat coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with allpolicies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payableor other endorsements as Lender may require.Insurance Reports.  Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender mayreasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) theproperties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values;and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independentappraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shallbe paid by Borrower.Guaranties.  Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor namedbelow, on Lender's forms, and in the amount and under the conditions set forth in those guaranties. Loan No. 18700 2  Name of GuarantorAmount International Medication Systems,LimitedUnlimited Other Agreements.  Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and anyother party and notify Lender immediately in writing of any default in connection with any other such agreements.Loan Proceeds.  Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.Taxes, Charges and Liens.  Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes,governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date onwhich penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, orprofits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so longas (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower'sbooks adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.Performance.  Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the RelatedDocuments, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of anydefault in connection with any agreement.Operations.  Maintain executive and management personnel with substantially the same qualifications and experience as the present executive andmanagement personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in areasonable and prudent manner.Environmental Studies.  Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may berequested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or ahazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned,leased or used by Borrower.Compliance with Governmental Requirements.  Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmentalauthorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, includingwithout limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withholdcompliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as,in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a suretybond, reasonably satisfactory to Lender, to protect Lender's interest.Inspection.  Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower'sother properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books,accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records andcomputer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify suchparty to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all atBorrower's expense. Compliance Certificates.  Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chieffinancial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are trueand correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.Environmental Compliance and Reports.  Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist,as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupiedby Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and incompliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptlyand in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication fromany governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with anyenvironmental activity whether or not there is damage to the environment and/or other natural resources.Additional Assurances.  Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments,financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure theLoans and to perfect all Security Interests.LENDER'S EXPENDITURES.  If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower failsto comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due anyamounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not beobligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests,encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving anyCollateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the dateincurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option,will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments tobecome due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon paymentwhich will be due and payable at the Note's maturity.NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior writtenconsent of Lender:Indebtedness and Liens.  (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by thisAgreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease,grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower'saccounts, except to Lender.Continuity of Operations.  (1) Engage in any business activities substantially different than those in which Borrower is presentlyengaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sellCollateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided,however thatLoan No. 18700 3  notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, ifBorrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on itsstock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income taxpayments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporationbecause of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower'scapital structure.Loans, Acquisitions and Guaranties.  (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase,create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course ofbusiness.Agreements.  Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligationsunder this Agreement or in connection herewith.CESSATION OF ADVANCES.  If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any otheragreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default underthe terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower orany Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) thereoccurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securingany Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loanwith Lender.DEFAULT.  Each of the following shall constitute an Event of Default under this Agreement:Payment Default.  Borrower fails to make any payment when due under the Loan.Other Defaults.  Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any ofthe Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lenderand Borrower.Default in Favor of Third Parties.  Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or salesagreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property orBorrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.False Statements.  Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under thisAgreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false ormisleading at any time thereafter.Insolvency.  The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver forany part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceedingunder any bankruptcy or insolvency laws by or against Borrower.Defective Collateralization.  This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateraldocument to create a valid and perfected security interest or lien) at any time and for any reason.Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help,repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. Thisincludes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if thereis a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and ifBorrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor orforfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.Events Affecting Guarantor.  Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies orbecomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.Change in Ownership.  Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.Adverse Change.  A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance ofthe Loan is impaired.Right to Cure.  If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given anotice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sendswritten notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if thecure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the defaultand thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except where otherwise provided in this Agreement or the RelatedDocuments, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate(including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due andpayable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsectionabove, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the RelatedDocuments or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall becumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, andan election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a defaultand to exercise its rights and remedies.JUDICIAL REFERENCE. If the waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies ofany nature between them arising at any time shall be decided by a reference to a private judge, who shall be a retired state or federal court judge, mutuallyselected by the parties or, if they cannot agree, then any party may seek to have a private judge appointed in accordance with California Code of CivilProcedure §§ 638 and 640 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts).The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, enteringLoan No. 18700 4  temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the publicand confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief,but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Court for such relief. Theproceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicialproceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules ofdiscovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicialproceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide allissues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure§ 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtainprovisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.The parties agree that time is of the essence in conducting the referenced proceedings. The parties shall promptly and diligently cooperate with oneanother and the referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of the dispute or controversy inaccordance with the terms hereof. The costs shall be borne equally by the parties.PRIOR LOAN AGREEMENT. This Loan Agreement supersedes, replaces and restates in its entirety that certain Business Loan Agreement datedSeptember 13, 2005 entered into between Borrower and Lender, together with all modifications thereto (the “ Prior Loan Agreement ” ). The PriorLoan Agreement shall have no further force and effect.CROSS ACCELERATION. In addition to the due dates and maturity date set forth in the Note, all principal and accrued interest and other amounts owedunder this Note shall become due in full at such earlier time, if any, the obligations of Borrower to Lender under that Promissory Note loan number 28933,loan number 20002400, loan number 20002400-600 and loan number 30011277 (as such notes may be amended or extended from time to time) are paidin full.CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County, State ofCalifornia.ORAL AGREEMENTS NOT EFFECTIVE. This Note or Agreement embodies the entire agreement and understanding between the parties hereto withrespect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to thesubject matter hereof and shall remain in full force and effect in accordance with its terms and conditions. Moreover, any subsequent oral statements,negotiations, agreements or understandings of the parties shall not be effective against Lender unless (i) expressly stated in writing, (ii) duly approved andauthorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriatein the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Borrower shall not rely or act on anyoral statements, negotiations, agreements or understandings between the parties at anytime whatsoever, including before or during any Lender approvalprocess stated above. Borrower acknowledges and agrees that Borrower shall be responsible for its own actions, including any detrimental reliance onany oral statements, negotiations, agreements or understandings between the parties and that Lender shall not be liable for any possible claims,counterclaims, demands, actions, causes of action, damages, costs, expenses and liability whatsoever, known or unknown, anticipated or unanticipated,suspected or unsuspected, at law or in equity, originating in whole or in part in connection with any oral statements, negotiations, agreements orunderstandings between the parties which the Borrower may now or hereafter claim against the Lender. Neither this Note or Agreement nor any otherRelated Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this section. Lender may from time to time, (a) enter into with Borrower written amendments, supplements or modifications hereto and to the Related Documents or (b)waive, on such terms and conditions as Lender may specify in such instrument, any of the requirements of this Note or Agreement or the RelatedDocuments or any Event Default and its consequences, if, but only if, such amendment, supplement, modification or waiver is (i) expressly stated in writing,(ii) duly approved and authorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shall deemnecessary or appropriate in the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Then suchamendment, supplement, modification or waiver shall be effective only in the specific instance and specific purpose for which given.OTHER DEFAULTS MODIFIED. Notwithstanding the section above entitled “ Other Defaults ” , Borrower fails to comply with or to perform any otherterm, obligation, covenant or condition contained in this Note or Agreement or in any of the Related Documents between Lender and Borrower; or anyshareholder, member, trustor, or any owner of the Borrower also holding a controlling interest in any given entity ’ s common stock, membership interest,trust interest, or any other ownership interest ( “ Related Entity ” ), fails to comply with or to perform any other term, obligation, covenant or conditioncontained in any other agreement between Lender and the Related Entity.DEPOSIT RELATIONSHIP. While this Agreement is in effect, Borrower shall maintain its main operating account with Lender.ADDENDUM TO BUSINESS LOAN AGREEMENT.  An exhibit, titled "ADDENDUM TO BUSINESS LOAN AGREEMENT," is attached to this Agreementand by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in thisAgreement.MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Agreement:Amendments.  This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to thematters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the partyor parties sought to be charged or bound by the alteration or amendment.Attorneys' Fees; Expenses.  Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees andLender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce thisAgreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legalexpenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify orvacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs andsuch additional fees as may be directed by the court.Caption Headings.  Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define theprovisions of this Agreement.Consent to Loan Participation.  Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participationinterests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, toany one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matterrelating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionallyLoan No. 18700 5  waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower alsoagrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have allthe rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives allrights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest andunconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvencyof any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interestsirrespective of any personal claims or defenses that Borrower may have against Lender.Governing Law.  This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, thelaws of the State of California without regard to its conflicts of law provisions.  This Agreement has been accepted by Lender in the State ofCalifornia.No Waiver by Lender.  Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signedby Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver byLender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with thatprovision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or betweenLender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any futuretransactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall notconstitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld inthe sole discretion of Lender.Notices.  Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actuallyreceived by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, whendeposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning ofthis Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying thatthe purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower'scurrent address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower isdeemed to be notice given to all Borrowers.Severability.  If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance,that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provisionshall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considereddeleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall notaffect the legality, validity or enforceability of any other provision of this Agreement.Subsidiaries and Affiliates of Borrower.  To the extent the context of any provisions of this Agreement makes it appropriate, including withoutlimitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries andaffiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan orother financial accommodation to any of Borrower's subsidiaries or affiliates.Successors and Assigns.  All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shallbind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, havethe right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.Survival of Representations and Warranties.  Borrower understands and agrees that in making the Loan, Lender is relying on all representations,warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under thisAgreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations,warranties and covenants will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, andshall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in themanner provided above, whichever is the last to occur.Time is of the Essence.  Time is of the essence in the performance of this Agreement.Waive Jury.  To the extent permitted by applicable law, all parties to this Agreement hereby waive the right to any jury trial in any action,proceeding, or counterclaim brought by any party against any other party.DEFINITIONS.  The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated tothe contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singularshall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreementshall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreementshall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Advance.  The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit ormultiple advance basis under the terms and conditions of this Agreement. Agreement.  The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from timeto time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower.  The word "Borrower" means Amphastar Pharmaceuticals, Inc. and includes all co-signers and co-makers signing the Note and all theirsuccessors and assigns.Collateral.  The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whethergranted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateralmortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust,conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security orlien interest whatsoever, whether created by law, contract, or otherwise.Environmental Laws.  The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to theprotection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and LiabilityAct of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicablestate or federal laws, rules, or regulations adopted pursuant thereto.Loan No. 18700 6  Event of Default.  The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.GAAP.  The word "GAAP" means generally accepted accounting principles. Grantor.  The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, includingwithout limitation all Borrowers granting such a Security Interest. Guarantor.  The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.Guaranty.  The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.Hazardous Substances.  The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical orinfectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored,disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest senseand include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the EnvironmentalLaws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.Indebtedness.  The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interesttogether with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the RelatedDocuments.Lender.  The word "Lender" means East West Bank, its successors and assigns. Loan.  The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, andhowever evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or scheduleattached to this Agreement from time to time.Note.  The word "Note" means the Promissory Note dated September 13, 2005 and Change In Terms Agreement dated January 8, 2016 in theprincipal amount of $3,724,840.78, from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of,consolidations of and substitutions for the promissory note or agreement.Permitted Liens.  The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liensfor taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen,or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase moneyliens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secureindebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness andLiens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing;and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the netvalue of Borrower's assets.Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements,guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements anddocuments, whether now or hereafter existing, executed in connection with the Loan.Security Agreement.  The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements,understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a SecurityInterest. Security Interest.  The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in theform of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattelmortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as asecurity device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TOITS TERMS.  THIS BUSINESS LOAN AGREEMENT IS DATED JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. LENDER:EAST WEST BANK By: ____          /s/REBECCA LEE _______________Authorized Signer LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\C40.FC TR-5156 PR-1 (M) Loan No. 18700 7     ADDENDUM TO BUSINESS LOAN AGREEMENT Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 This ADDENDUM TO BUSINESS LOAN AGREEMENT is attached to and by this reference is made a part of the Business Loan Agreement, datedJanuary 8, 2016, and executed in connection with a loan or other financial accommodations between EAST WEST BANK and AmphastarPharmaceuticals, Inc.Re: Loan No. 18700The DEFINITION of "Collateral" is hereby amended to read as follows:"Collateral.  The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granteddirectly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust,assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien,charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest or Financial Contractwhatsoever, whether created by law, contract, or otherwise."The DEFINITION of "Indebtedness" is hereby amended to read as follows:"Indebtedness.  The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest togetherwith all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents, includingany obligations related to any Financial Contract."The DEFINITION of "Related Documents" is hereby amended to read as follows:"Related Documents . The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements,guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, Interest Rate Derivative Documentation, and all otherinstruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan."The following DEFINITIONS are hereby added to the Agreement:"Financial Contract.  The words "Financial Contract" mean (1) an agreement (including terms and conditions incorporated by reference therein) which is arate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap, bond option, interest rate option,foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swapagreement, currency option, any other similar agreement (including any option to enter into any of the foregoing); or (2) any combination of the foregoing.Interest Rate Derivative Documentation . The words "Interest Rate Derivative Documentation" mean each trade confirmation, and the international swapsand derivative association master and schedule agreement executed in connection with the Indebtedness".THIS ADDENDUM TO BUSINESS LOAN AGREEMENT IS EXECUTED ON JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals, Inc. By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of Amphastar Pharmaceuticals,Inc. LENDER:EAST WEST BANK By: ____          /s/REBECCA LEE _______________Authorized Signer LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\C40.FC TR-5156 PR-1 (M)  Loan No. 18700 8   CHANGE IN TERMS AGREEMENT Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 Principal Amount:  $3,724,840.78Date of Agreement:  January 8, 2016 DESCRIPTION OF EXISTING INDEBTEDNESS.  The Promissory Note dated September 13, 2005, for loan number 18700 , in the original PrincipalAmount of $5,000,000.00, along with any and all subsequent Change In Terms Agreements.DESCRIPTION OF COLLATERAL.  Borrower acknowledges this Agreement is secured by the following collateral described in the security instrumentslisted herein:(A) a Deed of Trust dated January 8, 2016, to a trustee in favor of Lender on real property located in San Bernardino County, State of California. Thatagreement contains the following due on sale provision: Lender may, at Lender's option, declare immediately due and payable all sums secured by theDeed of Trust upon the sale or transfer, without Lender's prior written consent, of all or any part of the Real Property, or any interest in the RealProperty. A "sale or transfer" means the conveyance of Real Property or any right, title or interest in the Real Property; whether legal, beneficial orequitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interestwith a term greater than three (3) years, lease-option contract, or by sale, assignment, or transfer of any beneficial interest in or to any land trust holdingtitle to the Real Property, or by any other method of conveyance of an interest in the Real Property. If any Borrower is a corporation, partnership or limitedliability company, transfer also includes any change in ownership of more than twenty-five percent (25%) of the voting stock, partnership interests or limitedliability company interests, as the case may be, of such Borrower. However, this option shall not be exercised by Lender if such exercise is prohibited byapplicable law.(B) an Assignment of All Rents to Lender on real property located in San Bernardino County, State of California.(C) fixtures described in a Commercial Security Agreement dated September 13, 2005.DESCRIPTION OF CHANGE IN TERMS.  The Maturity date of the Note is hereby extended from January 1, 2016 to February 5, 2021.The sections entitled "PAYMENT" and "VARIABLE INTEREST RATE" are hereby amended and restated as follows:PAYMENT.  Borrower will make principal payments on this loan as set forth in the attached Exhibit "A. Borrower's first principal payment is due March 5,2016, and all subsequent principal payments are due on the same day of each month after that. In addition, Borrower will pay regular monthly payments ofall accrued unpaid interest due as of each payment date, beginning March 5, 2016, with all subsequent interest payments to be due on the same day ofeach month after that. Borrower's final payment due February 5, 2021, will be for all principal and all accrued interest not yet paid.Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any latecharges; and then to any unpaid collection costs.  Borrower will pay Lender at Lender's address shown above or at such other place as Lender maydesignate in writing.VARIABLE INTEREST RATE.  The interest rate on this loan is subject to change from time to time based on changes in an independent index which is thedaily Wall Street Journal Prime Rate, as quoted in the "Money Rates" column of The Wall Street Journal (Western Edition) all as determined by Lender (the"Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan,Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interestrate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well.  The Indexcurrently is 3.500% per annum.  Interest on the unpaid principal balance of this loan will be calculated as described in the "INTEREST CALCULATIONMETHOD" paragraph using a rate equal to the Index, resulting in an initial rate of 3.500%. NOTICE: Under no circumstances will the interest rate on thisloan be more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or moreof the following: (A) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (B) increase Borrower'spayments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue Borrower's payments at the same amount andincrease Borrower's final payment.INTEREST CALCULATION METHOD.  Interest on this loan is computed on a 365/360 basis; that is, by applying the ratio of the interest rate overa year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance isoutstanding.  All interest payable under this loan is computed using this method.BUSINESS DAY. Any day other than a Saturday or a Sunday or any day on which commercial banks in Los Angeles, California, are authorized or requiredto close.PAYMENT DUE DATE. If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day,the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during suchextension.The section entitled "INTEREST AFTER DEFAULT" is hereby amended and restated as follows:INTEREST AFTER DEFAULT.  Upon default, the interest rate on this loan shall, if permitted under applicable law, immediately increase by adding anadditional 5.000 percentage point margin ("Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change thatwould have applied had there been no default.The section entitled " Other Defaults Modified " is hereby amended and restated as follows:Other Defaults Modified . Notwithstanding the section above entitled “ Other Defaults ” , Borrower fails to comply with or to perform any other term,obligation, covenant or condition contained in this Note or Agreement or in any of the Related Documents between Lender and Borrower; or anyshareholder, member, trustor, or any owner of the Borrower also holding a controlling interest in any given entity ’ s common stock, membership interest,trust interest, or any other ownership interest ( “ Related Entity ” ), fails to comply with or to perform any other term, obligation, covenant or conditioncontained in any other agreement between Lender and the Related EntityLoan No. 18700 9   The section entitled "DISHONORED ITEM FEE" is hereby amended and restated as follows:DISHONORED ITEM FEE.  Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower's loan and the check or preauthorizedcharge with which Borrower pays is later dishonored.CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County, State ofCalifornia.JUDICIAL REFERENCE. If the waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies ofany nature between them arising at any time shall be decided by a reference to a private judge, who shall be a retired state or federal court judge, mutuallyselected by the parties or, if they cannot agree, then any party may seek to have a private judge appointed in accordance with California Code of CivilProcedure §§ 638 and 640 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts).The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporaryrestraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public andconfidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but ajudge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Court for such relief. Theproceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicialproceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules ofdiscovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicialproceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide allissues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure§ 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtainprovisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.The parties agree that time is of the essence in conducting the referenced proceedings. The parties shall promptly and diligently cooperate with oneanother and the referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of the dispute or controversy inaccordance with the terms hereof. The costs shall be borne equally by the parties.ORAL AGREEMENTS NOT EFFECTIVE. This Note or Agreement embodies the entire agreement and understanding between the parties hereto withrespect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to thesubject matter hereof and shall remain in full force and effect in accordance with its terms and conditions. Moreover, any subsequent oral statements,negotiations, agreements or understandings of the parties shall not be effective against Lender unless (i) expressly stated in writing, (ii) duly approved andauthorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriatein the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Borrower shall not rely or act on anyoral statements, negotiations, agreements or understandings between the parties at anytime whatsoever, including before or during any Lender approvalprocess stated above. Borrower acknowledges and agrees that Borrower shall be responsible for its own actions, including any detrimental reliance onany oral statements, negotiations, agreements or understandings between the parties and that Lender shall not be liable for any possible claims,counterclaims, demands, actions, causes of action, damages, costs, expenses and liability whatsoever, known or unknown, anticipated or unanticipated,suspected or unsuspected, at law or in equity, originating in whole or in part in connection with any oral statements, negotiations, agreements orunderstandings between the parties which the Borrower may now or hereafter claim against the Lender. Neither this Note or Agreement nor any otherRelated Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this section. Lender may from time to time, (a) enter into with Borrower written amendments, supplements or modifications hereto and to the Related Documents or (b)waive, on such terms and conditions as Lender may specify in such instrument, any of the requirements of this Note or Agreement or the RelatedDocuments or any Event Default and its consequences, if, but only if, such amendment, supplement, modification or waiver is (i) expressly stated in writing,(ii) duly approved and authorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shall deemnecessary or appropriate in the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Then suchamendment, supplement, modification or waiver shall be effective only in the specific instance and specific purpose for which given.CONTINUING VALIDITY.  Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreementsevidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender's rightto strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute asatisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), includingaccommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not bereleased by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing belowacknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes andprovisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also toall such subsequent actions.ADDENDUM TO CHANGE IN TERMS AGREEMENT- INTEREST RATE SWAP.  An exhibit, titled "ADDENDUM TO Change In Terms Agreement-INTEREST RATE SWAP," is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms andconditions of the Exhibit had been fully set forth in this Agreement.EXHIBIT "A".  An exhibit, titled "EXHIBIT "A"," is attached to this Agreement and by this reference is made a part of this Agreement just as if all theprovisions, terms and conditions of the Exhibit had been fully set forth in this Agreement.PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT.  BORROWERAGREES TO THE TERMS OF THE AGREEMENT.BORROWER:Loan No. 18700 10   AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\D20C.FC TR-5156 PR-1 (M) Loan No. 18700 11       ADDENDUM TO CHANGE IN TERMS AGREEMENT- INTEREST RATE SWAP Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 This ADDENDUM TO CHANGE IN TERMS AGREEMENT- INTEREST RATE SWAP is attached to and by this reference is made a part of the ChangeIn Terms Agreement, dated January 8, 2016, and executed in connection with a loan or other financial accommodations between EAST WESTBANK and Amphastar Pharmaceuticals, Inc.Re: Loan No. 18700The following sentence is hereby added to the paragraph headed "PREPAYMENT; MINIMUM INTEREST CHARGE" :"Notwithstanding the provisions of this paragraph, Borrower must consult with Lender prior to making any prepayments when a Financial Contract has beenexecuted between Borrower and Lender in connection with this Note. Borrower acknowledges that partial prepayments of the Note will require the FinancialContract to be amended."The subparagraph headed "Other Defaults," in the paragraph headed "DEFAULT," is hereby amended to read as follows:"Other Defaults.  Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the RelatedDocuments or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement including but not limited to anyFinancial Contract between Lender and Borrower."The subparagraph headed "Cure Provisions," in the paragraph headed "DEFAULT," is hereby amended to read as follows:"Cure Provisions . If any default, other than a default in payment or in a Financial Contract, is curable and if Borrower has not been given a notice of abreach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrowerdemanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates stepswhich Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary stepssufficient to produce compliance as soon as reasonably practical."The following DEFINITION is hereby added to the Note:"Financial Contract.  The words "Financial Contract" mean (1) an agreement (including terms and conditions incorporated by reference therein) which is arate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap, bond option, interest rate option,foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swapagreement, currency option, any other similar agreement (including any option to enter into any of the foregoing); or (2) any combination of the foregoing.THIS ADDENDUM TO CHANGE IN TERMS AGREEMENT- INTEREST RATE SWAP IS EXECUTED ON JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals, Inc. By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of Amphastar Pharmaceuticals,Inc. LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\D20C.FC TR-5156 PR-1 (M) Loan No. 18700 12         EXHIBIT "A" Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 This EXHIBIT "A" is attached to and by this reference is made a part of the Change In Terms Agreement, dated January 8, 2016, and executed inconnection with a loan or other financial accommodations between EAST WEST BANK and Amphastar Pharmaceuticals, Inc.Re: Loan No. 18700  Principal PaymentPayment Date01$6,498.007-Mar-1602$6,498.005-Apr-1603$6,498.005-May-1604$6,498.006-Jun-1605$6,498.005-Jul-1606$6,498.005-Aug-1607$6,498.006-Sep-1608$6,498.005-Oct-1609$6,498.007-Nov-1610$6,498.005-Dec-1611$6,498.005-Jan-1712$6,498.006-Feb-1713$6,943.006-Mar-1714$6,943.005-Apr-1715$6,943.005-May-1716$6,943.005-Jun-1717$6,943.005-Jul-1718$6,943.007-Aug-1719$6,943.005-Sep-1720$6,943.005-Oct-1721$6,943.006-Nov-1722$6,943.005-Dec-1723$6,943.005-Jan-1824$6,943.005-Feb-1825$7,243.005-Mar-1826$7,243.005-Apr-1827$7,243.007-May-1828$7,243.005-Jun-1829$7,243.005-Jul-1830$7,243.006-Aug-1831$7,243.005-Sep-1832$7,243.005-Oct-1833$7,243.005-Nov-1834$7,243.005-Dec-1835$7,243.007-Jan-1936$7,243.005-Feb-1937$7,600.005-Mar-1938$7,600.005-Apr-1939$7,600.006-May-1940$7,600.005-Jun-1941$7,600.005-Jul-1942$7,600.005-Aug-1943$7,600.005-Sep-1944$7,600.007-Oct-1945$7,600.005-Nov-1946$7,600.005-Dec-1947$7,600.006-Jan-2048$7,600.005-Feb-2049$7,935.005-Mar-20       50$7,935.006-Apr-2051$7,935.005-May-2052$7,935.005-Jun-2053$7,935.006-Jul-2054$7,935.005-Aug-2055$7,935.008-Sep-2056$7,935.005-Oct-2057$7,935.005-Nov-2058$7,935.007-Dec-2059$7,935.005-Jan-2160$3,298,147.785-Feb-21.          THIS EXHIBIT "A" IS EXECUTED ON JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals, Inc. By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of Amphastar Pharmaceuticals,Inc. LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\D20C.FC TR-5156 PR-1 (M)         CORPORATE RESOLUTION TO GUARANTEE / SUBORDINATE DEBT Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 Corporation:International Medication Systems, Limitedc/o Amphastar Pharmaceuticals, Inc.11570 Sixth StreetRancho Cucamonga, CA  91730 I, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:THE CORPORATION'S EXISTENCE.  The complete and correct name of the Corporation is International Medication Systems, Limited ("Corporation"). TheCorporation is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws ofthe State of Delaware. The Corporation is duly authorized to transact business in all other states in which the Corporation is doing business, having obtainedall necessary filings, governmental licenses and approvals for each state in which the Corporation is doing business. Specifically, the Corporation is, and at alltimes shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business orfinancial condition. The Corporation has the full power and authority to own its properties and to transact the business in which it is presently engaged orpresently proposes to engage. The Corporation maintains an office at c/o Amphastar Pharmaceuticals, Inc.11570 Sixth Street, Rancho Cucamonga, CA 91730. Unless the Corporation has designated otherwise in writing, the principal office is the office at which theCorporation keeps its books and records. The Corporation will notify Lender prior to any change in the location of the Corporation's state of organization orany change in the Corporation's name. The Corporation shall do all things necessary to preserve and to keep in full force and effect its existence, rights andprivileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or courtapplicable to the Corporation and the Corporation's business activities.RESOLUTIONS ADOPTED.  At a meeting of the Directors of the Corporation, or if the Corporation is a close corporation having no Board of Directors then ata meeting of the Corporation's shareholders, duly called and held on January 8, 2015 , at which a quorum was present and voting, or by other duly authorizedaction in lieu of a meeting, the resolutions set forth in this Resolution were adopted.OFFICERS.  The following named persons are officers of International Medication Systems, Limited:  NAMESTITLESAUTHORIZEDACTUAL SIGNATURES Jack ZhangCEOYX    __________ /s/ JACK ZHANG________________ (Seal) William J. PetersCFOYX   _________ / s /WILLIAM J. PETERS____________ (Seal) ACTIONS AUTHORIZED.  Any two (2) of the authorized persons listed above may enter into any agreements of any nature with Lender, and thoseagreements will bind the Corporation. Specifically, but without limitation, any two (2) of such authorized persons are authorized, empowered, and directedto do the following for and on behalf of the Corporation: Guaranty.  To guarantee or act as surety for loans or other financial accommodations to Borrower from Lender on such guarantee or surety terms asmay be agreed upon between the officers of the Corporation and Lender and in such sum or sums of money as in their judgment should beguaranteed or assured, without limit (the "Guaranty").Execute Security Documents.  To execute and deliver to Lender the forms of mortgage, deed of trust, pledge agreement, hypothecation agreement,and other security agreements and financing statements which Lender may require and which shall evidence the terms and conditions under andpursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to Lender any other written instruments,any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to thegiving of the liens and encumbrances. Notwithstanding the foregoing, any one of the above authorized persons may execute, deliver, or recordfinancing statements.Subordination.  To subordinate, in all respects, any and all present and future indebtedness, obligations, liabilities, claims, rights, and demands ofany kind which may be owed, now or hereafter, from any person or entity to the Corporation to all present and future indebtedness, obligations,liabilities, claims, rights, and demands of any kind which may be owed, now or hereafter, from such person or entity to Lender ("SubordinatedIndebtedness"), together with subordination by the Corporation of any and all security interests of any kind, whether now existing or hereafteracquired, securing payment or performance of the Subordinated Indebtedness; all on such subordination terms as may be agreed upon between theCorporation's Officers and Lender and in such amounts as in their judgment should be subordinated.Other Actions.  (A) Enter into any interest rate, credit, commodity or equity swap, cap, floor, collar, forward, foreign exchange transaction, currencyswap, cross currency swap, currency option, securities puts, calls, collars, options or forwards or any combination of, or option with respect to, theforegoing or similar transactions with the Lender. (B) Apply for letters of credit or seek issuance of banker's acceptances under which the Companyshall be liable to the Lender for repayment. (C) Purchase and sell foreign currencies, on behalf of the Company, whether for immediate or futuredelivery, in such amounts and upon such terms and conditions as the officer(s) authorized herein may deem appropriate, and give any instructions fortransfers or deposits of monies by check, drafts, cable, letter or otherwise for any purpose incidental to the foregoing, and authorize or direct       charges to the depository account or accounts of the Company for the cost of any foreign currencies so purchased through the Lender.Further Acts.  To do and perform such other acts and things and to execute and deliver such other documents and agreements, includingagreements waiving the right to a trial by jury, as the officers may in their discretion deem reasonably necessary or proper in order to carry intoeffect the provisions of this Resolution.ASSUMED BUSINESS NAMES.  The Corporation has filed or recorded all documents or filings required by law relating to all assumed business namesused by the Corporation. Excluding the name of the Corporation, the following is a complete list of all assumed business names under which theCorporation does business:  None.NOTICES TO LENDER.  The Corporation will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender maydesignate from time to time) prior to any (A) change in the Corporation's name; (B) change in the Corporation's assumed business name(s); (C) changein the management of the Corporation; (D) change in the authorized signer(s); (E) change in the Corporation's principal office address; (F) change inthe Corporation's state of organization; (G) conversion of the Corporation to a new or different type of business entity; or (H) change in any other aspectof the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the Corporation's name or stateof organization will take effect until after Lender has received notice.CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS.  The officers named above are duly elected, appointed, or employed by or for theCorporation, as the case may be, and occupy the positions set opposite their respective names. This Resolution now stands of record on the books of theCorporation, is in full force and effect, and has not been modified or revoked in any manner whatsoever.NO CORPORATE SEAL.  The Corporation has no corporate seal, and therefore, no seal is affixed to this Resolution.CONTINUING VALIDITY.  Any and all acts authorized pursuant to this Resolution and performed prior to the passage of this Resolution are hereby ratifiedand approved. This Resolution shall be continuing, shall remain in full force and effect and Lender may rely on it until written notice of its revocation shallhave been delivered to and received by Lender at Lender's address shown above (or such addresses as Lender may designate from time to time). Anysuch notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given.IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signatures set opposite the names listed above are their genuinesignatures.I have read all the provisions of this Resolution, and I personally and on behalf of the Corporation certify that all statements and representationsmade in this Resolution are true and correct.  This Corporate Resolution to Guarantee / Subordinate Debt is dated January 8, 2016. THIS RESOLUTION IS DELIVERED UNDER SEAL AND IT IS INTENDED THAT THIS RESOLUTION IS AND SHALL CONSTITUTE AND HAVE THEEFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.CERTIFIED TO AND ATTESTED BY: X __________ /s/Jacob Liawatidewi________________Jacob Liawatidewl, Secretary(Seal) NOTE: If the officers signing this Resolution are designated by the foregoing document as one of the officers authorized to act on the Corporation's behalf, it is advisable to have this Resolution signed by at leastone non-authorized officer of the Corporation.LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - DE/CA F:\PROD\LOANDOC\CFI\LPL\C10.FC TR-5156 PR-1 (M)         CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL Corporation:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 I, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:THE CORPORATION'S EXISTENCE.  The complete and correct name of the Corporation is Amphastar Pharmaceuticals, Inc. ("Corporation"). TheCorporation is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws ofthe State of Delaware. The Corporation is duly authorized to transact business in all other states in which the Corporation is doing business, having obtainedall necessary filings, governmental licenses and approvals for each state in which the Corporation is doing business. Specifically, the Corporation is, and at alltimes shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business orfinancial condition. The Corporation has the full power and authority to own its properties and to transact the business in which it is presently engaged orpresently proposes to engage. The Corporation maintains an office at 11570 6th Street, Rancho Cucamonga, CA 91730. Unless the Corporation hasdesignated otherwise in writing, the principal office is the office at which the Corporation keeps its books and records. The Corporation will notify Lender priorto any change in the location of the Corporation's state of organization or any change in the Corporation's name. The Corporation shall do all thingsnecessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes,orders and decrees of any governmental or quasi-governmental authority or court applicable to the Corporation and the Corporation's business activities.RESOLUTIONS ADOPTED.  At a meeting of the Directors of the Corporation, or if the Corporation is a close corporation having no Board of Directors then ata meeting of the Corporation's shareholders, duly called and held on January 8, 2016 , at which a quorum was present and voting, or by other duly authorizedaction in lieu of a meeting, the resolutions set forth in this Resolution were adopted.OFFICERS.  The following named persons are officers of Amphastar Pharmaceuticals, Inc.:  NAMESTITLESAUTHORIZEDACTUAL SIGNATURES Jack ZhangCEOYX __________ /s/ JACK ZHANG ________________(Seal) William J. PetersCFOYX _________ / s /WILLIAM J. PETERS ____________(Seal) ACTIONS AUTHORIZED.  Any two (2) of the authorized persons listed above may enter into any agreements of any nature with Lender, and thoseagreements will bind the Corporation. Specifically, but without limitation, any two (2) of such authorized persons are authorized, empowered, and directedto do the following for and on behalf of the Corporation: Borrow Money.  To borrow, as a cosigner or otherwise, from time to time from Lender, on such terms as may be agreed upon between theCorporation and Lender, such sum or sums of money as in their judgment should be borrowed, without limitation.Execute Notes.  To execute and deliver to Lender the promissory note or notes, or other evidence of the Corporation's credit accommodations, onLender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any of theCorporation's indebtedness to Lender, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings,consolidations, or substitutions for one or more of the notes, any portion of the notes, or any other evidence of credit accommodations.Grant Security.  To mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber and deliver to Lender any property now or hereafterbelonging to the Corporation or in which the Corporation now or hereafter may have an interest, including without limitation all of the Corporation's realproperty and all of the Corporation's personal property (tangible or intangible), as security for the payment of any loans or credit accommodations soobtained, any promissory notes so executed (including any amendments to or modifications, renewals, and extensions of such promissory notes), orany other or further indebtedness of the Corporation to Lender at any time owing, however the same may be evidenced. Such property may bemortgaged, pledged, transferred, endorsed, hypothecated or encumbered at the time such loans are obtained or such indebtedness is incurred, or atany other time or times, and may be either in addition to or in lieu of any property theretofore mortgaged, pledged, transferred, endorsed,hypothecated or encumbered.Execute Security Documents.  To execute and deliver to Lender the forms of mortgage, deed of trust, pledge agreement, hypothecation agreement,and other security agreements and financing statements which Lender may require and which shall evidence the terms and conditions under andpursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to Lender any other written instruments,any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to thegiving of the liens and encumbrances. Notwithstanding the foregoing, any one of the above authorized persons may execute, deliver, or recordfinancing statements.Other Actions.  (A) Enter into any interest rate, credit, commodity or equity swap, cap, floor, collar, forward, foreign exchange transaction, currencyswap, cross currency swap, currency option, securities puts, calls, collars, options or forwards or any combination of, or option with respect to, theforegoing or similar transactions with the Lender. (B) Apply for letters of credit or seek issuance of banker's acceptances under which the Corporationshall be liable to the Lender for repayment. (C) Purchase and sell foreign currencies, on behalf of the Corporation, whether for immediate or futuredelivery, in such amounts and upon such terms and conditions as the officer(s) authorized herein may deem appropriate, and       give any instructions for transfers or deposits of monies by check, drafts, cable, letter or otherwise for any purpose incidental to the foregoing, andauthorize or direct charges to the depository account or accounts of the Corporation for the cost of any foreign currencies so purchased through theLender.Negotiate Items.  To draw, endorse, and discount with Lender all drafts, trade acceptances, promissory notes, or other evidences of indebtednesspayable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause suchproceeds to be credited to the Corporation's account with Lender, or to cause such other disposition of the proceeds derived therefrom as they maydeem advisable.Further Acts.  In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances under such lines,and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documentsand agreements, including agreements waiving the right to a trial by jury, as the officers may in their discretion deem reasonably necessary orproper in order to carry into effect the provisions of this Resolution.ASSUMED BUSINESS NAMES.  The Corporation has filed or recorded all documents or filings required by law relating to all assumed business namesused by the Corporation. Excluding the name of the Corporation, the following is a complete list of all assumed business names under which theCorporation does business:  None.NOTICES TO LENDER.  The Corporation will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender maydesignate from time to time) prior to any (A) change in the Corporation's name; (B) change in the Corporation's assumed business name(s); (C) changein the management of the Corporation; (D) change in the authorized signer(s); (E) change in the Corporation's principal office address; (F) change inthe Corporation's state of organization; (G) conversion of the Corporation to a new or different type of business entity; or (H) change in any other aspectof the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the Corporation's name or stateof organization will take effect until after Lender has received notice.CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS.  The officers named above are duly elected, appointed, or employed by or for theCorporation, as the case may be, and occupy the positions set opposite their respective names. This Resolution now stands of record on the books of theCorporation, is in full force and effect, and has not been modified or revoked in any manner whatsoever.NO CORPORATE SEAL.  The Corporation has no corporate seal, and therefore, no seal is affixed to this Resolution.CONTINUING VALIDITY.  Any and all acts authorized pursuant to this Resolution and performed prior to the passage of this Resolution are hereby ratifiedand approved. This Resolution shall be continuing, shall remain in full force and effect and Lender may rely on it until written notice of its revocation shallhave been delivered to and received by Lender at Lender's address shown above (or such addresses as Lender may designate from time to time). Anysuch notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given.IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signatures set opposite the names listed above are their genuinesignatures.I have read all the provisions of this Resolution, and I personally and on behalf of the Corporation certify that all statements and representationsmade in this Resolution are true and correct.  This Corporate Resolution to Borrow / Grant Collateral is dated January 8, 2016. THIS RESOLUTION IS DELIVERED UNDER SEAL AND IT IS INTENDED THAT THIS RESOLUTION IS AND SHALL CONSTITUTE AND HAVE THEEFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.CERTIFIED TO AND ATTESTED BY: X __________ /s/Jacob Liawatidewi________________Jacob Liawatidewl, Secretary(Seal) NOTE: If the officers signing this Resolution are designated by the foregoing document as one of the officers authorized to act on the Corporation's behalf, it is advisable to have this Resolution signed by at leastone non-authorized officer of the Corporation.LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - DE/CA F:\PROD\LOANDOC\CFI\LPL\C10.FC TR-5156 PR-1 (M)         DISCLOSURE OF RIGHT TO RECEIVE A COPY OF AN APPRAISAL Applicant:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 Disclosure of Right to Receive a Copy of an Appraisal Application Number:  18700Loan Number:  18700You have the right to a copy of the appraisal report used in connection with your application for credit. If you wish to have a copy, please write to us at thefollowing mailing address East West Bank Appraisal Department 9300 Flair Drive, 6th Floor El Monte, CA 91731. We must hear from you no later thanninety (90) days after we notify you about the action taken on your credit application or no later than ninety (90) days after you withdraw your application.In your letter, give us the following information:Borrower's name, property address and loan numberUpon your request, the appraisal report will be sent to:11570 6th StreetRancho Cucamonga, CA 91730Costs of Providing the Appraisal Copy:  You are required to pay the cost of the appraisal.APPLICANT ACKNOWLEDGMENTI acknowledge that I have received a copy of this Disclosure of Right to Receive a Copy of an Appraisal .APPLICANT:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of AmphastarPharmaceuticals, Inc. ____________________DateBy: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. ____________________Date LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\B14.FC TR-5156 PR-1 (M)         HAZARD INSURANCE DISCLOSURE Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 HAZARD INSURANCE DISCLOSUREMade Pursuant to California Civil Code Section 2955.5IMPORTANTDO NOT SIGN THIS FORM UNTIL YOU CAREFULLYREAD IT AND UNDERSTAND ITS CONTENTYou have applied for a loan or credit accommodation that will be secured by real property. As a condition of the loan or creditaccommodation, Lender may require you to maintain hazard insurance coverage for the real property. California law provides thatLender cannot require you, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurancecoverage against risks to the property (such as fire and other perils) in an amount exceeding the replacement value of the building orstructures attached to the property.BY SIGNING BELOW, YOU ACKNOWLEDGE THAT YOU HAVE READ, RECEIVED AND UNDERSTAND THIS HAZARDINSURANCE DISCLOSURE. THIS DISCLOSURE IS DATED JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\B18.FC TR-5156 PR-1 (M)         AGREEMENT TO PROVIDE INSURANCE Grantor:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 INSURANCE REQUIREMENTS.  Grantor, Amphastar Pharmaceuticals, Inc. ("Grantor"), understands that insurance coverage is required in connection withthe extending of a loan or the providing of other financial accommodations to Grantor by Lender. These requirements are set forth in the security documentsfor the loan. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"):  Collateral:11530 6th Street, Rancho Cucamonga, CA  91730. Type:  Fire and extended coverage.Amount:  Full Insurable Value; however in no event greater than the value of the replacement cost of the improvements.Basis:  Replacement value.Endorsements:  Standard mortgagee's clause with stipulation that coverage will not be cancelled or diminished without a minimum of 30days prior written notice to Lender, and without disclaimer of the insurer's liability for failure to give such notice.Comments:  Lender's Loss Payable Endorsement to read: East West Bank, its successors and/or assigns, at P.O. Box 60021, City ofIndustry, CA 91716-0021.Deductible . Not to exceed $50,000.00.Latest Delivery Date:  By the loan closing date.INSURANCE COMPANY.  Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably acceptable to Lender. Grantorunderstands that credit may not be denied solely because insurance was not purchased through Lender.FLOOD INSURANCE.  Flood Insurance for the Collateral securing this loan is described as follows: Real Estate at 11530 6th Street, Rancho Cucamonga, CA  91730. The Collateral securing this loan is not currently located in an area identified as having special flood hazards. Therefore, no special flood hazardinsurance is necessary at this time. Should the Collateral at any time be deemed to be located in an area designated by the Administrator of the FederalEmergency Management Agency as a special flood hazard area, Grantor agrees to obtain and maintain Federal Flood Insurance, if available, within 45days after notice is given by Lender that the Collateral is located in a special flood hazard area, for the full unpaid principal balance of the loan and anyprior liens on the property securing the loan, up to the maximum policy limits set under the National Flood Insurance Program, or as otherwise requiredby Lender, and to maintain such insurance for the term of the loan. Flood insurance may be purchased under the National Flood Insurance Program orfrom private insurers.INSURANCE MAILING ADDRESS.  All documents and other materials relating to insurance for this loan should be mailed, delivered or directed to thefollowing address: East West BankLoan Service Department - InsuranceP.O. Box 60021City of Industry, CA  91716-0021HAZARDOUS INSURANCE DISCLOSURE. Lender has advised us that it is not permitted under California law to require a borrower, as a condition ofreceiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property (suchas fire and other peril) in an amount exceeding the replacement value of the improvements on the property.FAILURE TO PROVIDE INSURANCE.  Grantor agrees to deliver to Lender, on the latest delivery date stated above, evidence of the required insurance asprovided above, with an effective date of January 8, 2016, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any required insuranceor fails to continue such insurance in force, Lender may do so at Grantor's expense as provided in the applicable security document. The cost of any suchinsurance, at the option of Lender, shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IFLENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THECOLLATERAL, UP TO AN AMOUNT EQUAL TO THE LESSER OF (1) THE UNPAID BALANCE OF THE DEBT, EXCLUDING ANY UNEARNED FINANCECHARGES, OR (2) THE VALUE OF THE COLLATERAL; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THEREQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.AUTHORIZATION.  For purposes of insurance coverage on the Collateral, Grantor authorizes Lender to provide to any person (including any insurance agentor company) all information Lender deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITSTERMS.  THIS AGREEMENT IS DATED JANUARY 8, 2016.GRANTOR:       AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. FOR LENDER USE ONLYINSURANCE VERIFICATIONDATE: _______________________PHONE _______________________________AGENT'S NAME: _______________________________AGENCY: _______________________________________________ADDRESS: ______________________________________________________________________INSURANCE COMPANY: _______________________________________________POLICY NUMBER: _______________________EFFECTIVE DATES: ______________________________________________________________________COMMENTS: ______________________________________________________________________LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\I10.FC TR-5156 PR-1 (M)         DISBURSEMENT REQUEST AND AUTHORIZATION Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 LOAN TYPE.  This is a Variable Rate Nondisclosable Loan to a Corporation for $3,724,840.78. This is a secured renewal loan.PRIMARY PURPOSE OF LOAN.  The primary purpose of this loan is for: Personal, Family, or Household Purposes or Personal Investment. XBusiness (Including Real Estate Investment).SPECIFIC PURPOSE.  The specific purpose of this loan is: To renew existing loan for another 5 years; amend the interest rate and payments terms; andconvert loan to Swap/IRC.FLOOD INSURANCE.  As reflected on Flood Map No. 06071C 8633F dated 08-28-2008, for the community of City of Rancho Cucamonga, the property thatwill secure the loan is not located in an area that has been identified by the Administrator of the Federal Emergency Management Agency as an area havingspecial flood hazards. Therefore, although flood insurance may be available for the property, no special flood hazard insurance protecting property notlocated in an area having special flood hazards is required by law for this loan at this time.DISBURSEMENT INSTRUCTIONS.  Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan havebeen satisfied. Please disburse the loan proceeds of $3,724,840.78 as follows:Other Disbursements:$3,724,840.78$3,724,840.78 Outstanding Principal BalanceNote Principal:$3,724,840.78CHARGES PAID IN CASH.  Borrower has paid or will pay in cash as agreed the following charges:Prepaid Finance Charges Paid in Cash:$5,591.26$5,587.26 Loan Fees$4.00 Life of Loan Flood FeeOther Charges Paid in Cash:$37,887.38$3,034.00 Title Insurance Fee (estimate)$450.00 Environmental Fee$9.00 Initial Flood Certification Fee$250.00 Title Recording Fees (estimate)$4,100.00 Appraisal Fee$34,144.38 Interest payment due up to 2/15/2016 (estimate)$-4,100.00 Borrower prepaidTotal Charges Paid in Cash:$43,478.64AUTOMATIC PAYMENTS.  Borrower hereby authorizes Lender automatically to deduct from Borrower's account, numbered _______________, theamount of any loan payment. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover thepayment. At any time and for any reason, Borrower or Lender may voluntarily terminate Automatic Payments.LOAN FEE DEDUCTION. Borrower authorizes Lender to deduct the fees and any other third party costs and expenses related to the Loan and chargesabove from Borrower's checking account number, ______________________________ with Lender, all without further consent of Borrower. Lender isfully entitled to take such actions even if Borrower gives contrary instructions or demands to Lender.FINANCIAL CONDITION.  BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THEINFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'SFINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.  THIS       AUTHORIZATION IS DATED JANUARY 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\I20.FC TR-5156 PR-1 (M)         NOTICE OF FINAL AGREEMENT Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT:  (A) THE WRITTEN LOANAGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,  (B) THERE ARE NO UNWRITTENORAL AGREEMENTS BETWEEN THE PARTIES, AND  (C) THE WRITTEN LOAN AGREEMENT MAY NOT BECONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS ORUNDERSTANDINGS OF THE PARTIES.As used in this Notice, the following terms have the following meanings:Loan.  The term "Loan" means the following described loan: a Variable Rate Nondisclosable Loan to a Corporation for $3,724,840.78. This is asecured renewal loan.Loan Agreement.  The term "Loan Agreement" means one or more promises, promissory notes, agreements, undertakings, securityagreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, relating to the Loan,including without limitation the following:LOAN DOCUMENTS- Disclosure of Right to Receive a Copy of an Appraisal - Hazard Insurance Disclosure - CA - Corporate Resolution: International Medication Systems,Limited- Corporate Resolution: Amphastar Pharmaceuticals, Inc. - Business Loan Agreement- Change In Terms Agreement - CA Commercial Guaranty: International Medication Systems,Limited- CA Deed of Trust for Real Property located at 11530 6th Street,Rancho Cucamonga, CA 91730 - CA Assignment of Rents- Agreement to Provide Insurance - Disbursement Request and Authorization- Notice of Final Agreement Parties.  The term "Parties" means East West Bank and any and all entities or individuals who are obligated to repay the loan or havepledged property as security for the Loan, including without limitation the following: Borrower:Amphastar Pharmaceuticals, Inc.Grantor(s):Amphastar Pharmaceuticals, Inc.Guarantor 1:International Medication Systems, LimitedEach Party who signs below, other than East West Bank, acknowledges, represents, and warrants to East West Bank that it has received, readand understood this Notice of Final Agreement.  This Notice is dated January 8, 2016.BORROWER:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals,Inc.By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of AmphastarPharmaceuticals, Inc. GUARANTOR:       INTERNATIONAL MEDICATION SYSTEMS, LIMITED By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of International MedicationSystems, LimitedBy: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of International MedicationSystems, Limited LENDER:EAST WEST BANK X ____          /s/REBECCA LEE _______________Authorized Signer LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\I21.FC TR-5156 PR-1 (M)         COMMERCIAL GUARANTY Borrower:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730Lender:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731 Guarantor:International Medication Systems, Limitedc/o Amphastar Pharmaceuticals, Inc.11570 Sixth StreetRancho Cucamonga, CA  91730 CONTINUING GUARANTEE OF PAYMENT AND PERFORMANCE.  For good and valuable consideration, Guarantor absolutely and unconditionallyguarantees full and punctual payment and satisfaction of the Indebtedness of Borrower to Lender, and the performance and discharge of all Borrower'sobligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce thisGuaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against anycollateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness. Guarantor will make any payments to Lender or its order, ondemand, in legal tender of the United States of America, in same-day funds, without set-off or deduction or counterclaim, and will otherwise performBorrower's obligations under the Note and Related Documents. Under this Guaranty, Guarantor's liability is unlimited and Guarantor's obligations arecontinuing.INDEBTEDNESS.  The word "Indebtedness" as used in this Guaranty means all of the principal amount outstanding from time to time and at any one or moretimes, accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, attorneys' fees, arising from any and alldebts, liabilities and obligations of every nature or form, now existing or hereafter arising or acquired, that Borrower individually or collectively orinterchangeably with others, owes or will owe Lender. "Indebtedness" includes, without limitation, loans, advances, debts, overdraft indebtedness, credit cardindebtedness, lease obligations, liabilities and obligations under any interest rate protection agreements or foreign currency exchange agreements orcommodity price protection agreements, other obligations, and liabilities of Borrower, and any present or future judgments against Borrower, future advances,loans or transactions that renew, extend, modify, refinance, consolidate or substitute these debts, liabilities and obligations whether: voluntarily or involuntarilyincurred; due or to become due by their terms or acceleration; absolute or contingent; liquidated or unliquidated; determined or undetermined; direct orindirect; primary or secondary in nature or arising from a guaranty or surety; secured or unsecured; joint or several or joint and several; evidenced by anegotiable or non-negotiable instrument or writing; originated by Lender or another or others; barred or unenforceable against Borrower for any reasonwhatsoever; for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or otherwise); and originated then reduced orextinguished and then afterwards increased or reinstated.If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, Lender's rights under all guaranties shall becumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. Guarantor's liability willbe Guarantor's aggregate liability under the terms of this Guaranty and any such other unterminated guaranties.CONTINUING GUARANTY.  THIS IS A "CONTINUING GUARANTY" UNDER WHICH GUARANTOR AGREES TO GUARANTEE THE FULL ANDPUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF BORROWER TO LENDER, NOW EXISTING ORHEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS. ACCORDINGLY, ANY PAYMENTS MADE ON THE INDEBTEDNESSWILL NOT DISCHARGE OR DIMINISH GUARANTOR'S OBLIGATIONS AND LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING ANDSUCCEEDING INDEBTEDNESS EVEN WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME TOTIME.DURATION OF GUARANTY.  This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice toGuarantor or to Borrower, and will continue in full force until all the Indebtedness incurred or contracted before receipt by Lender of any notice of revocationshall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full. If Guarantorelects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written notice of revocation must be mailed to Lender, by certified mail, atLender's address listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to new Indebtednesscreated after actual receipt by Lender of Guarantor's written revocation. For this purpose and without limitation, the term "new Indebtedness" does not includethe Indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated,determined or due. For this purpose and without limitation, "new Indebtedness" does not include all or part of the Indebtedness that is: incurred by Borrowerprior to revocation; incurred under a commitment that became binding before revocation; any renewals, extensions, substitutions, and modifications of theIndebtedness. This Guaranty shall bind Guarantor's estate as to the Indebtedness created both before and after Guarantor's death or incapacity, regardlessof Lender's actual notice of Guarantor's death. Subject to the foregoing, Guarantor's executor or administrator or other legal representative may terminate thisGuaranty in the same manner in which Guarantor might have terminated it and with the same effect. Release of any other guarantor or termination of anyother guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation Lender receives from any one or moreGuarantors shall not affect the liability of any remaining Guarantors under this Guaranty. Guarantor's obligations under this Guaranty shall be in addition toany of Guarantor's obligations, or any of them, under any other guaranties of the Indebtedness or any other person heretofore or hereafter given to Lenderunless such other guaranties are modified or revoked in writing; and this Guarantor shall not, unless provided in this Guaranty, affect, invalidate, or supersedeany such other guaranty.  It is anticipated that fluctuations may occur in the aggregate amount of the Indebtedness covered by this Guaranty, andGuarantor specifically acknowledges and agrees that reductions in the amount of the Indebtedness, even to zero dollars ($0.00), shall notconstitute a termination of this Guaranty.  This Guaranty is binding upon Guarantor and Guarantor's heirs, successors and assigns so long as anyof the Indebtedness remains unpaid and even though the Indebtedness may from time to time be zero dollars ($0.00).       SUPPLEMENTAL DEFINITION OF INDEBTEDNESS. In addition to the definition of “ Indebtedness ” stated above in this Guaranty, the word “Indebtedness ” as used in this Guaranty shall also include Financial Contract (as defined herein) obligations. "Financial Contract" means (1) an agreement(including terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, commodity swap,commodity option, equity or equity index swap, bond option, interest rate option, foreign exchange agreement, rate cap agreement, rate floor agreement, ratecollar agreement, currency swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enterinto any of the foregoing); or (2) any combination of the foregoing. However, "Indebtedness" shall not include any Excluded Financial Contract Obligation(as defined herein). “ Excluded Financial Contract Obligation ” means, with respect to any Guarantor, any Financial Contract obligation if, and to theextent that, all or a portion of the Guaranty of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Financial Contractobligation (or any Guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity FuturesTrading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor's failure for any reason to constitute an "eligiblecontract participant" as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guaranty of such Guarantor or the grant ofsuch security interest becomes effective with respect to such Financial Contract obligation. If a Financial Contract obligation arises under a master agreementgoverning more than one swap, such exclusion shall apply only to the portion of such Financial Contract Obligation that is attributable to swaps for which suchGuaranty or security interest is or becomes illegal.GUARANTOR'S AUTHORIZATION TO LENDER.  Guarantor authorizes Lender, either before or after any revocation hereof, without notice or demand andwithout lessening Guarantor's liability under this Guaranty, from time to time:  (A) prior to revocation as set forth above, to make one or moreadditional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit toBorrower; (B) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of theIndebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated andmay be for longer than the original loan term; (C) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce,waive, subordinate, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (D) to release, substitute,agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender maychoose; (E) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (F) to apply such security and directthe order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed oftrust, as Lender in its discretion may determine; (G) to sell, transfer, assign or grant participations in all or any part of the Indebtedness; and (H) to assign ortransfer this Guaranty in whole or in part.GUARANTOR'S REPRESENTATIONS AND WARRANTIES.  Guarantor represents and warrants to Lender that (A) no representations or agreements ofany kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (B) this Guaranty is executed at Borrower's requestand not at the request of Lender; (C) Guarantor has full power, right and authority to enter into this Guaranty; (D) the provisions of this Guaranty do notconflict with or result in a default under any agreement or other instrument binding upon Guarantor and do not result in a violation of any law, regulation, courtdecree or order applicable to Guarantor; (E) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber,hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (F) upon Lender's request, Guarantor willprovide to Lender financial and credit information in form acceptable to Lender, and all such financial information which currently has been, and all futurefinancial information which will be provided to Lender is and will be true and correct in all material respects and fairly present Guarantor's financial condition asof the dates the financial information is provided; (G) no material adverse change has occurred in Guarantor's financial condition since the date of the mostrecent financial statements provided to Lender and no event has occurred which may materially adversely affect Guarantor's financial condition; (H) nolitigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Guarantor is pending orthreatened; (I) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; and (J) Guarantor has established adequate meansof obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed fromsuch means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that,absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the courseof its relationship with Borrower.GUARANTOR'S WAIVERS.  Except as prohibited by applicable law, Guarantor waives any right to require Lender to (A) make any presentment, protest,demand, or notice of any kind, including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor orsurety, any action or nonaction taken by Borrower, Lender, or any other guarantor or surety of Borrower, or the creation of new or additionalIndebtedness; (B) proceed against any person, including Borrower, before proceeding against Guarantor; (C) proceed against any collateral for theIndebtedness, including Borrower's collateral, before proceeding against Guarantor; (D) apply any payments or proceeds received against the Indebtednessin any order; (E) give notice of the terms, time, and place of any sale of the collateral pursuant to the Uniform Commercial Code or any other law governingsuch sale; (F) disclose any information about the Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or about any action ornonaction of Lender; or (G) pursue any remedy or course of action in Lender's power whatsoever.Guarantor also waives any and all rights or defenses arising by reason of (H) any disability or other defense of Borrower, any other guarantor or surety or anyother person; (I) the cessation from any cause whatsoever, other than payment in full, of the Indebtedness; (J) the application of proceeds of theIndebtedness by Borrower for purposes other than the purposes understood and intended by Guarantor and Lender; (K) any act of omission or commissionby Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the Indebtedness, or the loss orrelease of any collateral by operation of law or otherwise; (L) any statute of limitations in any action under this Guaranty or on the Indebtedness; or (M) anymodification or change in terms of the Indebtedness, whatsoever, including without limitation, the renewal, extension, acceleration, or other change in the timepayment of the Indebtedness is due and any change in the interest rate, and including any such modification or change in terms after revocation of thisGuaranty on the Indebtedness incurred prior to such revocation.Guarantor waives all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may becomeavailable to Guarantor by reason of California Civil Code Sections 2787 to 2855, inclusive.Guarantor waives all rights and any defenses arising out of an election of remedies by Lender even though that the election of remedies, such as a non-judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against Borrowerby operation of Section 580d of the California Code of Civil Procedure or otherwise.       Guarantor waives all rights and defenses that Guarantor may have because Borrower's obligation is secured by real property. This means among otherthings: (N) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower. (O) If Lenderforecloses on any real property collateral pledged by Borrower: (1) the amount of Borrower's obligation may be reduced only by the price for which thecollateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (2) Lender may collect from Guarantor even if Lender, byforeclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocablewaiver of any rights and defenses Guarantor may have because Borrower's obligation is secured by real property. These rights and defenses include, but arenot limited to, any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure.Guarantor understands and agrees that the foregoing waivers are unconditional and irrevocable waivers of substantive rights and defenses to whichGuarantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by Californialaws of suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that Guarantor has provided thesewaivers of rights and defenses with the intention that they be fully relied upon by Lender. Guarantor further understands and agrees that this Guaranty is aseparate and independent contract between Guarantor and Lender, given for full and ample consideration, and is enforceable on its own terms. Until all of theIndebtedness is paid in full, Guarantor waives any right to enforce any remedy Guarantor may have against the Borrower or any other guarantor, surety, orother person, and further, Guarantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender.Guarantor's Understanding With Respect To Waivers.  Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor'sfull knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. Ifany such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or publicpolicy.Subordination of Borrower's Debts to Guarantor.  Guarantor agrees that the Indebtedness, whether now existing or hereafter created, shall be superior toany claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expresslysubordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have againstBorrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors,by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lenderand shall be first applied by Lender to the Indebtedness. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower oragainst any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring toLender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts orobligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantoragrees, and Lender is hereby authorized, in the name of Guarantor, from time to time to file financing statements and continuation statements and to executedocuments and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.Miscellaneous Provisions.  The following miscellaneous provisions are a part of this Guaranty:AMENDMENTS.  This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the mattersset forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought tobe charged or bound by the alteration or amendment.ATTORNEYS' FEES; EXPENSES.  Guarantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees andLender's legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty,and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether ornot there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay orinjunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may bedirected by the court.CAPTION HEADINGS.  Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions ofthis Guaranty.GOVERNING LAW.  This Guaranty will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws ofthe State of California without regard to its conflicts of law provisions.INTEGRATION.  Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to beadvised by Guarantor's attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor's intentions and parol evidence is not required to interpretthe terms of this Guaranty. Guarantor hereby indemnifies and holds Lender harmless from all losses, claims, damages, and costs (including Lender'sattorneys' fees) suffered or incurred by Lender as a result of any breach by Guarantor of the warranties, representations and agreements of this paragraph.INTERPRETATION.  In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed tohave been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when thisGuaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. Thewords "Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns, and transferees of each of them. If a court finds that any provision of thisGuaranty is not valid or should not be enforced, that fact by itself will not mean that the rest of this Guaranty will not be valid or enforced. Therefore, a courtwill enforce the rest of the provisions of this Guaranty even if a provision of this Guaranty may be found to be invalid or unenforceable. If any one or more ofBorrower or Guarantor are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers ofBorrower or Guarantor or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness madeor created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.NOTICES.  Any notice required to be given under this Guaranty shall be given in writing, and, except for revocation notices by Guarantor, shall be effectivewhen actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnightcourier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown       near the beginning of this Guaranty. All revocation notices by Guarantor shall be in writing and shall be effective upon delivery to Lender as provided in thesection of this Guaranty entitled "DURATION OF GUARANTY." Any party may change its address for notices under this Guaranty by giving formal writtennotice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Guarantor agrees to keep Lenderinformed at all times of Guarantor's current address. Unless otherwise provided or required by law, if there is more than one Guarantor, any notice given byLender to any Guarantor is deemed to be notice given to all Guarantors.NO WAIVER BY LENDER.  Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed byLender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of aprovision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any otherprovision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender'srights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of suchconsent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases suchconsent may be granted or withheld in the sole discretion of Lender.SUCCESSORS AND ASSIGNS.  Subject to any limitations stated in this Guaranty on transfer of Guarantor's interest, this Guaranty shall be binding upon andinure to the benefit of the parties, their successors and assigns.WAIVE JURY.  To the extent permitted by applicable law, Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, orcounterclaim brought by either Lender or Guarantor against the other.CERTIFICATION OF ACCURACY. Guarantor certifies under penalty of perjury that all financial documents provided to Lender, which may include incomestatements, balance sheets, payable and receivable listings, inventory listings, rents rolls, and tax returns, are the most recent such documents prepared byGuarantor, that they give a complete and accurate statement of the financial condition of Guarantor, as of the dates of such statements, and that no materialchange has occurred since such time, except as disclosed to Lender in writing. Guarantor agrees to notify Lender immediately of the extent and character ofany material adverse change in the Guarantor's financial condition. The financial documents shall constitute continuing representations of Guarantor and shallbe construed by Lender to be continuing statements of the financial condition of Guarantor and to be new and original statement of all assets and liabilities ofGuarantor with respect to each advance under the Indebtedness and every other transaction in which Guarantor or Borrower becomes obligated to Lenderuntil Guarantor advises Lender to the contrary. The financial documents are being given to induce Lender to extend credit and Lender is relying upon suchdocuments. Lender may verify with third parties any information contained in financial documents delivered to Lender, obtain information from others, and askand answer questions and requests seeking credit experience about the undersigned.JUDICIAL REFERENCE. If the waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of anynature between them arising at any time shall be decided by a reference to a private judge, who shall be a retired state or federal court judge, mutuallyselected by the parties or, if they cannot agree, then any party may seek to have a private judge appointed in accordance with California Code of CivilProcedure §§ 638 and 640 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts). Thereference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1,inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders,issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all recordsrelating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointedat that point pursuant to the judicial reference procedures, then such party may apply to the Court for such relief. The proceeding before the private judge shallbe conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled todiscovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. Theprivate judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial courtjudge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or oflaw, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right ofany party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine allissues relating to the applicability, interpretation, and enforceability of this paragraph.The parties agree that time is of the essence in conducting the referenced proceedings. The parties shall promptly and diligently cooperate with oneanother and the referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of the dispute or controversy inaccordance with the terms hereof. The costs shall be borne equally by the parties.CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County, State ofCalifornia.ORAL AGREEMENTS NOT EFFECTIVE. This Note or Agreement embodies the entire agreement and understanding between the parties hereto with respectto the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to the subjectmatter hereof and shall remain in full force and effect in accordance with its terms and conditions. Moreover, any subsequent oral statements, negotiations,agreements or understandings of the parties shall not be effective against Lender unless (i) expressly stated in writing, (ii) duly approved and authorized by anappropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriate in the committee ’ ssole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Borrower shall not rely or act on any oral statements,negotiations, agreements or understandings between the parties at anytime whatsoever, including before or during any Lender approval process statedabove. Borrower acknowledges and agrees that Borrower shall be responsible for its own actions, including any detrimental reliance on any oralstatements, negotiations, agreements or understandings between the parties and that Lender shall not be liable for any possible claims, counterclaims,demands, actions, causes of action, damages, costs, expenses and liability whatsoever, known or unknown, anticipated or unanticipated, suspected orunsuspected, at law or in equity, originating in whole or in part in connection with any oral statements, negotiations, agreements or understandings betweenthe parties which the Borrower may now or hereafter claim against the Lender. Neither this Note or Agreement nor any other Related Document, nor anyterms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this section. Lender may from time to time,(a) enter into with Borrower written amendments, supplements or modifications hereto and to the Related Documents or (b) waive, on such terms and       conditions as Lender may specify in such instrument, any of the requirements of this Note or Agreement or the Related Documents or any Event Default andits consequences, if, but only if, such amendment, supplement, modification or waiver is (i) expressly stated in writing, (ii) duly approved and authorized by anappropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriate in the committee ’ ssole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Then such amendment, supplement, modification or waivershall be effective only in the specific instance and specific purpose for which given.Definitions.  The following capitalized words and terms shall have the following meanings when used in this Guaranty. Unless specifically stated to thecontrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shallinclude the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Guaranty shall have themeanings attributed to such terms in the Uniform Commercial Code: BORROWER.  The word "Borrower" means Amphastar Pharmaceuticals, Inc. and includes all co-signers and co-makers signing the Note and all theirsuccessors and assigns.GUARANTOR.  The word "Guarantor" means everyone signing this Guaranty, including without limitation International Medication Systems, Limited, and ineach case, any signer's successors and assigns.GUARANTY.  The word "Guaranty" means this guaranty from Guarantor to Lender.INDEBTEDNESS.  The word "Indebtedness" means Borrower's indebtedness to Lender as more particularly described in this Guaranty.LENDER.  The word "Lender" means East West Bank, its successors and assigns. NOTE.  The word "Note" means and includes without limitation all of Borrower's promissory notes and/or credit agreements evidencing Borrower's loanobligations in favor of Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for promissorynotes or credit agreements.RELATED DOCUMENTS.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements,guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents,whether now or hereafter existing, executed in connection with the Indebtedness. EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITSTERMS.  IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION ANDDELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH INTHE SECTION TITLED "DURATION OF GUARANTY".  NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTYEFFECTIVE.  THIS GUARANTY IS DATED JANUARY 8, 2016.GUARANTOR:INTERNATIONAL MEDICATION SYSTEMS, LIMITED By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of International MedicationSystems, LimitedBy: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of International MedicationSystems, Limited LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\E20.FC TR-5156 PR-1 (M)         RECORDATION REQUESTED BY:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731WHEN RECORDED MAIL TO:East West BankLoan Service Department9300 Flair Drive, 6th FloorEl Monte, CA  91731SEND TAX NOTICES TO:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730FOR RECORDER'S USE ONLYDEED OF TRUSTTHIS DEED OF TRUST is dated January 8, 2016, among AMPHASTAR PHARMACEUTICALS, INC., A CALIFORNIACORPORATION, whose address is 11570 6th Street, Rancho Cucamonga, CA  91730 ("Trustor"); East West Bank,whose address is Loan Servicing Department, 9300 Flair Drive, 6th Floor, El Monte, CA  91731 (referred to belowsometimes as "Lender" and sometimes as "Beneficiary"); and EAST WEST INVESTMENT INC., A CALIFORNIACORPORATION, whose address is 415 HUNTINGTON DRIVE, SAN MARINO, CA  91108 (referred to below as"Trustee").CONVEYANCE AND GRANT.  For valuable consideration, Trustor irrevocably grants, transfers and assigns to Trustee in trust, with powerof sale, for the benefit of Lender as Beneficiary, all of Trustor's right, title, and interest in and to the following described real property, together withall existing or subsequently erected or affixed buildings, improvements and fixtures; all easements, rights of way, and appurtenances; all water, waterrights and ditch rights (including stock in utilities with ditch or irrigation rights); and all other rights, royalties, and profits relating to the real property,including without limitation all minerals, oil, gas, geothermal and similar matters, (the "Real Property") located in San BernardinoCounty, State of California:See Exhibit "A", which is attached to this Deed of Trust and made a part of this Deed of Trust as if fully set forthherein.The Real Property or its address is commonly known as  11530 6th Street, Rancho Cucamonga, CA  91730.  TheAssessor's Parcel Number for the Real Property is 0229-262-37-0-000The following DEFINITION is hereby added to the Agreement:Interest Rate Derivative Documentation . The words "Interest Rate Derivative Documentation" mean each tradeconfirmation, and the international swaps and derivative association master and schedule agreement executed in connectionwith the Indebtedness.The DEFINITION of "Related Documents" is hereby amended to read as follows:Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements,security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, Interest Rate Derivative Documentation,and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with theIndebtedness; except that the words do not mean any guaranty or environmental agreement, whether now or hereafterexisting, executed in connection with the Indebtedness.Trustor presently assigns to Lender (also known as Beneficiary in this Deed of Trust) all of Trustor's right, title, and interest in and to all present andfuture leases of the Property and all Rents from the Property. This is an absolute assignment of Rents made in connection with an obligation securedby real property pursuant to California Civil Code Section 2938. In addition, Trustor grants to Lender a Uniform Commercial Code security       interest in the Personal Property and Rents.THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN THE RENTS AND PERSONALPROPERTY, IS GIVEN TO SECURE  (A)  PAYMENT OF THE INDEBTEDNESS AND  (B)  PERFORMANCE OF ANY AND ALL OBLIGATIONS OFTHE TRUSTOR UNDER THE NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST.  THIS DEED OF TRUST IS GIVEN ANDACCEPTED ON THE FOLLOWING TERMS:PAYMENT AND PERFORMANCE.  Except as otherwise provided in this Deed of Trust, Trustor shall pay to Lender all amounts secured by this Deedof Trust as they become due, and shall strictly and in a timely manner perform all of Trustor's obligations under the Note, this Deed of Trust, and theRelated Documents.POSSESSION AND MAINTENANCE OF THE PROPERTY.  Trustor agrees that Trustor's possession and use of the Property shall be governed bythe following provisions:Possession and Use.  Until the occurrence of an Event of Default, Trustor may (1) remain in possession and control of the Property; (2) use,operate or manage the Property; and (3) collect the Rents from the Property.Duty to Maintain.  Trustor shall maintain the Property in tenantable condition and promptly perform all repairs, replacements, and maintenancenecessary to preserve its value.Compliance With Environmental Laws.  Trustor represents and warrants to Lender that: (1) During the period of Trustor's ownership of theProperty, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any HazardousSubstance by any person on, under, about or from the Property; (2) Trustor has no knowledge of, or reason to believe that there has been,except as previously disclosed to and acknowledged by Lender in writing, (a) any breach or violation of any Environmental Laws, (b) any use,generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from theProperty by any prior owners or occupants of the Property, or (c) any actual or threatened litigation or claims of any kind by any person relatingto such matters; and (3) Except as previously disclosed to and acknowledged by Lender in writing, (a) neither Trustor nor any tenant,contractor, agent or other authorized user of the Property shall use, generate, manufacture, store, treat, dispose of or release any HazardousSubstance on, under, about or from the Property; and (b) any such activity shall be conducted in compliance with all applicable federal, state,and local laws, regulations and ordinances, including without limitation all Environmental Laws. Trustor authorizes Lender and its agents to enterupon the Property to make such inspections and tests, at Trustor's expense, as Lender may deem appropriate to determine compliance of theProperty with this section of the Deed of Trust. Any inspections or tests made by Lender shall be for Lender's purposes only and shall not beconstrued to create any responsibility or liability on the part of Lender to Trustor or to any other person. The representations and warrantiescontained herein are based on Trustor's due diligence in investigating the Property for Hazardous Substances. Trustor hereby (1) releases andwaives any future claims against Lender for indemnity or contribution in the event Trustor becomes liable for cleanup or other costs under anysuch laws; and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties,and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Deed of Trust or as aconsequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Trustor's ownership orinterest in the Property, whether or not the same was or should have been known to Trustor. The provisions of this section of the Deed of Trust,including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the satisfaction and reconveyance of the lienof this Deed of Trust and shall not be affected by Lender's acquisition of any interest in the Property, whether by foreclosure or otherwise.Nuisance, Waste.  Trustor shall not cause, conduct or permit any nuisance nor commit, permit, or suffer any stripping of or waste on or to theProperty or any portion of the Property. Without limiting the generality of the foregoing, Trustor will not remove, or grant to any other party theright to remove, any timber, minerals (including oil and gas), coal, clay, scoria, soil, gravel or rock products without Lender's prior written consent.Removal of Improvements.  Trustor shall not demolish or remove any Improvements from the Real Property without Lender's prior writtenconsent. As a condition to the removal of any Improvements, Lender may require Trustor to make arrangements satisfactory to Lender toreplace such Improvements with Improvements of at least equal value.Lender's Right to Enter.  Lender and Lender's agents and representatives may enter upon the Real Property at all reasonable times to attendto Lender's interests and to inspect the Real Property for purposes of Trustor's compliance with the terms and conditions of this Deed of Trust.Compliance with Governmental Requirements.  Trustor shall promptly comply with all laws, ordinances, and regulations, now or hereafter ineffect, of all governmental authorities applicable to the use or occupancy of the Property, including without limitation, the Americans WithDisabilities Act. Trustor may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding,including appropriate appeals, so long as Trustor has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion,Lender's interests in the Property are not jeopardized. Lender may require Trustor to post adequate security or a surety bond, reasonablysatisfactory to Lender, to protect Lender's interest.Duty to Protect.  Trustor agrees neither to abandon or leave unattended the Property. Trustor shall do all other acts, in addition to those actsset forth above in this section, which from the character and use of the Property are reasonably necessary to protect and preserve the Property.DUE ON SALE - CONSENT BY LENDER.  Lender may, at Lender's option, declare immediately due and payable all sums secured by this Deed ofTrust upon the sale or transfer, without Lender's prior written consent, of all or any part of the Real Property, or any interest in the Real Property. A"sale or transfer" means the conveyance of Real Property or any right, title or interest in the Real Property; whether legal, beneficial or equitable;whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with aterm greater than three (3) years, lease-option contract, or by sale, assignment, or transfer of any beneficial interest in or to any land trust holding       title to the Real Property, or by any other method of conveyance of an interest in the Real Property. If any Trustor is a corporation, partnership orlimited liability company, transfer also includes any change in ownership of more than twenty-five percent (25%) of the voting stock, partnershipinterests or limited liability company interests, as the case may be, of such Trustor. However, this option shall not be exercised by Lender if suchexercise is prohibited by applicable law.TAXES AND LIENS.  The following provisions relating to the taxes and liens on the Property are part of this Deed of Trust: Payment.  Trustor shall pay when due (and in all events at least ten (10) days prior to delinquency) all taxes, special taxes, assessments,charges (including water and sewer), fines and impositions levied against or on account of the Property, and shall pay when due all claims forwork done on or for services rendered or material furnished to the Property. Trustor shall maintain the Property free of all liens having priorityover or equal to the interest of Lender under this Deed of Trust, except for the lien of taxes and assessments not due and except as otherwiseprovided in this Deed of Trust.Right to Contest.  Trustor may withhold payment of any tax, assessment, or claim in connection with a good faith dispute over the obligation topay, so long as Lender's interest in the Property is not jeopardized. If a lien arises or is filed as a result of nonpayment, Trustor shall withinfifteen (15) days after the lien arises or, if a lien is filed, within fifteen (15) days after Trustor has notice of the filing, secure the discharge of thelien, or if requested by Lender, deposit with Lender cash or a sufficient corporate surety bond or other security satisfactory to Lender in anamount sufficient to discharge the lien plus any costs and attorneys' fees, or other charges that could accrue as a result of a foreclosure or saleunder the lien. In any contest, Trustor shall defend itself and Lender and shall satisfy any adverse judgment before enforcement against theProperty. Trustor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.Evidence of Payment.  Trustor shall upon demand furnish to Lender satisfactory evidence of payment of the taxes or assessments and shallauthorize the appropriate governmental official to deliver to Lender at any time a written statement of the taxes and assessments against theProperty.Notice of Construction.  Trustor shall notify Lender at least fifteen (15) days before any work is commenced, any services are furnished, or anymaterials are supplied to the Property, if any mechanic's lien, materialmen's lien, or other lien could be asserted on account of the work, services,or materials and the cost exceeds $10,000.00. Trustor will upon request of Lender furnish to Lender advance assurances satisfactory to Lenderthat Trustor can and will pay the cost of such improvements.PROPERTY DAMAGE INSURANCE.  The following provisions relating to insuring the Property are a part of this Deed of Trust.Maintenance of Insurance.  Trustor shall procure and maintain policies of fire insurance with standard extended coverage endorsements on areplacement basis for the full insurable value covering all Improvements on the Real Property in an amount sufficient to avoid application of anycoinsurance clause, and with a standard mortgagee clause in favor of Lender. Trustor shall also procure and maintain comprehensive generalliability insurance in such coverage amounts as Lender may request with Trustee and Lender being named as additional insureds in such liabilityinsurance policies. Additionally, Trustor shall maintain such other insurance, including but not limited to hazard, business interruption, and boilerinsurance, as Lender may reasonably require. Notwithstanding the foregoing, in no event shall Trustor be required to provide hazard insurancein excess of the replacement value of the improvements on the Real Property. Policies shall be written in form, amounts, coverages and basisreasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Trustor, upon request of Lender, willdeliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages willnot be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include anendorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Trustor or any otherperson. Should the Real Property be located in an area designated by the Administrator of the Federal Emergency Management Agency as aspecial flood hazard area, Trustor agrees to obtain and maintain Federal Flood Insurance, if available, within 45 days after notice is given byLender that the Property is located in a special flood hazard area, for the full unpaid principal balance of the loan and any prior liens on theproperty securing the loan, up to the maximum policy limits set under the National Flood Insurance Program, or as otherwise required by Lender,and to maintain such insurance for the term of the loan.Application of Proceeds.  Trustor shall promptly notify Lender of any loss or damage to the Property if the estimated cost of repair orreplacement exceeds $10,000.00. Lender may make proof of loss if Trustor fails to do so within fifteen (15) days of the casualty. If in Lender'ssole judgment Lender's security interest in the Property has been impaired, Lender may, at Lender's election, receive and retain the proceeds ofany insurance and apply the proceeds to the reduction of the Indebtedness, payment of any lien affecting the Property, or the restoration andrepair of the Property. If the proceeds are to be applied to restoration and repair, Trustor shall repair or replace the damaged or destroyedImprovements in a manner satisfactory to Lender. Lender shall, upon satisfactory proof of such expenditure, pay or reimburse Trustor from theproceeds for the reasonable cost of repair or restoration if Trustor is not in default under this Deed of Trust. Any proceeds which have not beendisbursed within 180 days after their receipt and which Lender has not committed to the repair or restoration of the Property shall be used first topay any amount owing to Lender under this Deed of Trust, then to pay accrued interest, and the remainder, if any, shall be applied to theprincipal balance of the Indebtedness. If Lender holds any proceeds after payment in full of the Indebtedness, such proceeds shall be paid toTrustor as Trustor's interests may appear.Trustor's Report on Insurance.  Upon request of Lender, however not more than once a year, Trustor shall furnish to Lender a report on eachexisting policy of insurance showing: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured,the then current replacement value of such property, and the manner of determining that value; and (5) the expiration date of the policy. Trustorshall, upon request of Lender, have an independent appraiser satisfactory to Lender determine the cash value replacement cost of the Property.LENDER'S EXPENDITURES.  If any action or proceeding is commenced that would materially affect Lender's interest in the Property or if Trustorfails to comply with any provision of this Deed of Trust or any Related Documents, including but not limited to Trustor's failure to discharge or paywhen due any amounts Trustor is required to discharge or pay under this Deed of Trust or any Related Documents, Lender on Trustor's behalf may(but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens,       security interests, encumbrances and other claims, at any time levied or placed on the Property and paying all costs for insuring, maintaining andpreserving the Property. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Notefrom the date incurred or paid by Lender to the date of repayment by Trustor. All such expenses will become a part of the Indebtedness and, atLender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with anyinstallment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) betreated as a balloon payment which will be due and payable at the Note's maturity. The Deed of Trust also will secure payment of theseamounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.WARRANTY; DEFENSE OF TITLE.  The following provisions relating to ownership of the Property are a part of this Deed of Trust:Title.  Trustor warrants that: (a) Trustor holds good and marketable title of record to the Property in fee simple, free and clear of all liens andencumbrances other than those set forth in the Real Property description or in any title insurance policy, title report, or final title opinion issued infavor of, and accepted by, Lender in connection with this Deed of Trust, and (b) Trustor has the full right, power, and authority to execute anddeliver this Deed of Trust to Lender.Defense of Title.  Subject to the exception in the paragraph above, Trustor warrants and will forever defend the title to the Property against thelawful claims of all persons. In the event any action or proceeding is commenced that questions Trustor's title or the interest of Trustee or Lenderunder this Deed of Trust, Trustor shall defend the action at Trustor's expense. Trustor may be the nominal party in such proceeding, but Lendershall be entitled to participate in the proceeding and to be represented in the proceeding by counsel of Lender's own choice, and Trustor willdeliver, or cause to be delivered, to Lender such instruments as Lender may request from time to time to permit such participation.Compliance With Laws.  Trustor warrants that the Property and Trustor's use of the Property complies with all existing applicable laws,ordinances, and regulations of governmental authorities.Survival of Representations and Warranties.  All representations, warranties, and agreements made by Trustor in this Deed of Trust shallsurvive the execution and delivery of this Deed of Trust, shall be continuing in nature, and shall remain in full force and effect until such time asTrustor's Indebtedness shall be paid in full.CONDEMNATION.  The following provisions relating to eminent domain and inverse condemnation proceedings are a part of this Deed of Trust:Proceedings.  If any eminent domain or inverse condemnation proceeding is commenced affecting the Property, Trustor shall promptly notifyLender in writing, and Trustor shall promptly take such steps as may be necessary to pursue or defend the action and obtain the award. Trustormay be the nominal party in any such proceeding, but Lender shall be entitled, at its election, to participate in the proceeding and to berepresented in the proceeding by counsel of its own choice, and Trustor will deliver or cause to be delivered to Lender such instruments anddocumentation as may be requested by Lender from time to time to permit such participation.Application of Net Proceeds.  If any award is made or settlement entered into in any condemnation proceedings affecting all or any part of theProperty or by any proceeding or purchase in lieu of condemnation, Lender may at its election, and to the extent permitted by law, require that allor any portion of the award or settlement be applied to the Indebtedness and to the repayment of all reasonable costs, expenses, and attorneys'fees incurred by Trustee or Lender in connection with the condemnation proceedings.IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES.  The following provisions relating to governmental taxes,fees and charges are a part of this Deed of Trust:Current Taxes, Fees and Charges.  Upon request by Lender, Trustor shall execute such documents in addition to this Deed of Trust and takewhatever other action is requested by Lender to perfect and continue Lender's lien on the Real Property. Trustor shall reimburse Lender for alltaxes, as described below, together with all expenses incurred in recording, perfecting or continuing this Deed of Trust, including withoutlimitation all taxes, fees, documentary stamps, and other charges for recording or registering this Deed of Trust.Taxes.  The following shall constitute taxes to which this section applies: (1) a specific tax upon this type of Deed of Trust or upon all or anypart of the Indebtedness secured by this Deed of Trust; (2) a specific tax on Trustor which Trustor is authorized or required to deduct frompayments on the Indebtedness secured by this type of Deed of Trust; (3) a tax on this type of Deed of Trust chargeable against the Lender orthe holder of the Note; and (4) a specific tax on all or any portion of the Indebtedness or on payments of principal and interest made by Trustor.Subsequent Taxes.  If any tax to which this section applies is enacted subsequent to the date of this Deed of Trust, this event shall have thesame effect as an Event of Default, and Lender may exercise any or all of its available remedies for an Event of Default as provided belowunless Trustor either (1) pays the tax before it becomes delinquent, or (2) contests the tax as provided above in the Taxes and Liens sectionand deposits with Lender cash or a sufficient corporate surety bond or other security satisfactory to Lender.SECURITY AGREEMENT; FINANCING STATEMENTS.  The following provisions relating to this Deed of Trust as a security agreement are a part ofthis Deed of Trust:Security Agreement.  This instrument shall constitute a Security Agreement to the extent any of the Property constitutes fixtures, and Lendershall have all of the rights of a secured party under the Uniform Commercial Code as amended from time to time.Security Interest.  Upon request by Lender, Trustor shall take whatever action is requested by Lender to perfect and continue Lender's securityinterest in the Rents and Personal Property. Trustor shall reimburse Lender for all expenses incurred in perfecting or continuing this securityinterest. Upon default, Trustor shall not remove, sever or detach the Personal Property from the Property. Upon default, Trustor shall assembleany Personal Property not affixed to the Property in a manner and at a place reasonably convenient to Trustor and Lender and make it availableto Lender within three (3) days after receipt of written demand from Lender to the extent permitted by applicable law.Addresses.  The mailing addresses of Trustor (debtor) and Lender (secured party) from which information concerning the security interestgranted by this Deed of Trust may be obtained (each as required by the Uniform Commercial Code) are as stated on the first page of this       Deed of Trust.FURTHER ASSURANCES; ATTORNEY-IN-FACT.  The following provisions relating to further assurances and attorney-in-fact are a part of this Deedof Trust:Further Assurances.  At any time, and from time to time, upon request of Lender, Trustor will make, execute and deliver, or will cause to bemade, executed or delivered, to Lender or to Lender's designee, and when requested by Lender, cause to be filed, recorded, refiled, orrerecorded, as the case may be, at such times and in such offices and places as Lender may deem appropriate, any and all such mortgages,deeds of trust, security deeds, security agreements, financing statements, continuation statements, instruments of further assurance, certificates,and other documents as may, in the sole opinion of Lender, be necessary or desirable in order to effectuate, complete, perfect, continue, orpreserve (1) Trustor's obligations under the Note, this Deed of Trust, and the Related Documents, and (2) the liens and security interestscreated by this Deed of Trust as first and prior liens on the Property, whether now owned or hereafter acquired by Trustor. Unless prohibited bylaw or Lender agrees to the contrary in writing, Trustor shall reimburse Lender for all costs and expenses incurred in connection with the mattersreferred to in this paragraph.Attorney-in-Fact.  If Trustor fails to do any of the things referred to in the preceding paragraph, Lender may do so for and in the name of Trustorand at Trustor's expense. For such purposes, Trustor hereby irrevocably appoints Lender as Trustor's attorney-in-fact for the purpose of making,executing, delivering, filing, recording, and doing all other things as may be necessary or desirable, in Lender's sole opinion, to accomplish thematters referred to in the preceding paragraph.FULL PERFORMANCE.  If Trustor pays all the Indebtedness when due, and otherwise performs all the obligations imposed upon Trustor under thisDeed of Trust, Lender shall execute and deliver to Trustee a request for full reconveyance and shall execute and deliver to Trustor suitablestatements of termination of any financing statement on file evidencing Lender's security interest in the Rents and the Personal Property. Lender maycharge Trustor a reasonable reconveyance fee at the time of reconveyance.EVENTS OF DEFAULT.  Each of the following, at Lender's option, shall constitute an Event of Default under this Deed of Trust:Payment Default.  Trustor fails to make any payment when due under the Indebtedness.Other Defaults.  Trustor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Deed of Trust or inany of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreementbetween Lender and Trustor.Compliance Default.  Failure to comply with any other term, obligation, covenant or condition contained in this Deed of Trust, the Note or in anyof the Related Documents.Default on Other Payments.  Failure of Trustor within the time required by this Deed of Trust to make any payment for taxes or insurance, orany other payment necessary to prevent filing of or to effect discharge of any lien.Default in Favor of Third Parties.  Should Grantor default under any loan, extension of credit, security agreement, purchase or salesagreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor'sability to repay the Indebtedness or Grantor's ability to perform Grantor's obligations under this Deed of Trust or any of the Related Documents.False Statements.  Any warranty, representation or statement made or furnished to Lender by Trustor or on Trustor's behalf under this Deed ofTrust or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false ormisleading at any time thereafter.Defective Collateralization.  This Deed of Trust or any of the Related Documents ceases to be in full force and effect (including failure of anycollateral document to create a valid and perfected security interest or lien) at any time and for any reason.Insolvency.  The dissolution or termination of Trustor's existence as a going business, the insolvency of Trustor, the appointment of a receiverfor any part of Trustor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of anyproceeding under any bankruptcy or insolvency laws by or against Trustor.Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help,repossession or any other method, by any creditor of Trustor or by any governmental agency against any property securing theIndebtedness. This includes a garnishment of any of Trustor's accounts, including deposit accounts, with Lender. However, this Event of Defaultshall not apply if there is a good faith dispute by Trustor as to the validity or reasonableness of the claim which is the basis of the creditor orforfeiture proceeding and if Trustor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or asurety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve orbond for the dispute.Breach of Other Agreement.  Any breach by Trustor under the terms of any other agreement between Trustor and Lender that is not remediedwithin any grace period provided therein, including without limitation any agreement concerning any indebtedness or other obligation of Trustor toLender, whether existing now or later.Events Affecting Guarantor.  Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantordies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.Adverse Change.  A material adverse change occurs in Trustor's financial condition, or Lender believes the prospect of payment or performanceof the Indebtedness is impaired.Right to Cure.  If any default, other than a default in payment, is curable and if Trustor has not been given a notice of a breach of the sameprovision of this Deed of Trust within the preceding twelve (12) months, it may be cured if Trustor, after Lender sends written notice to Trustor       demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days,immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues andcompletes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.RIGHTS AND REMEDIES ON DEFAULT.  If an Event of Default occurs under this Deed of Trust, at any time thereafter, Trustee or Lender mayexercise any one or more of the following rights and remedies:Election of Remedies.  Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to makeexpenditures or to take action to perform an obligation of Trustor under this Deed of Trust, after Trustor's failure to perform, shall not affectLender's right to declare a default and exercise its remedies.Foreclosure by Sale.  Upon an Event of Default under this Deed of Trust, Beneficiary may declare the entire Indebtedness secured by thisDeed of Trust immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice ofdefault and of election to cause to be sold the Property, which notice Trustee shall cause to be filed for record. Beneficiary also shall depositwith Trustee this Deed of Trust, the Note, other documents requested by Trustee, and all documents evidencing expenditures securedhereby. After the lapse of such time as may then be required by law following the recordation of the notice of default, and notice of sale havingbeen given as then required by law, Trustee, without demand on Trustor, shall sell the Property at the time and place fixed by it in the notice ofsale, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder for cash in lawfulmoney of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of the Property by public announcement atsuch time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the precedingpostponement in accordance with applicable law. Trustee shall deliver to such purchaser its deed conveying the Property so sold, but withoutany covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulnessthereof. Any person, including Trustor, Trustee or Beneficiary may purchase at such sale. After deducting all costs, fees and expenses ofTrustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of: allsums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all othersums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto.Judicial Foreclosure.  With respect to all or any part of the Real Property, Lender shall have the right in lieu of foreclosure by power of sale toforeclose by judicial foreclosure in accordance with and to the full extent provided by California law.UCC Remedies.  With respect to all or any part of the Personal Property, Lender shall have all the rights and remedies of a secured party underthe Uniform Commercial Code, including without limitation the right to recover any deficiency in the manner and to the full extent provided byCalifornia law.Collect Rents.  Lender shall have the right, without notice to Trustor to take possession of and manage the Property and collect the Rents,including amounts past due and unpaid, and apply the net proceeds, over and above Lender's costs, against the Indebtedness. In furtherance ofthis right, Lender may require any tenant or other user of the Property to make payments of rent or use fees directly to Lender. If the Rents arecollected by Lender, then Trustor irrevocably designates Lender as Trustor's attorney-in-fact to endorse instruments received in payment thereofin the name of Trustor and to negotiate the same and collect the proceeds. Payments by tenants or other users to Lender in response toLender's demand shall satisfy the obligations for which the payments are made, whether or not any proper grounds for the demandexisted. Lender may exercise its rights under this subparagraph either in person, by agent, or through a receiver.Appoint Receiver.  Lender shall have the right to have a receiver appointed to take possession of all or any part of the Property, with the powerto protect and preserve the Property, to operate the Property preceding foreclosure or sale, and to collect the Rents from the Property and applythe proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted bylaw. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Property exceeds the Indebtedness by asubstantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.Tenancy at Sufferance.  If Trustor remains in possession of the Property after the Property is sold as provided above or Lender otherwisebecomes entitled to possession of the Property upon default of Trustor, Trustor shall become a tenant at sufferance of Lender or the purchaserof the Property and shall, at Lender's option, either (1) pay a reasonable rental for the use of the Property, or (2) vacate the Propertyimmediately upon the demand of Lender. Other Remedies.  Trustee or Lender shall have any other right or remedy provided in this Deed of Trust or the Note or available at law or inequity.Notice of Sale.  Lender shall give Trustor reasonable notice of the time and place of any public sale of the Personal Property or of the time afterwhich any private sale or other intended disposition of the Personal Property is to be made. Reasonable notice shall mean notice given at leastten (10) days before the time of the sale or disposition. Any sale of the Personal Property may be made in conjunction with any sale of the RealProperty.Sale of the Property.  To the extent permitted by applicable law, Trustor hereby waives any and all rights to have the Property marshalled. Inexercising its rights and remedies, the Trustee or Lender shall be free to sell all or any part of the Property together or separately, in one sale orby separate sales. Lender shall be entitled to bid at any public sale on all or any portion of the Property.Attorneys' Fees; Expenses.  If Lender institutes any suit or action to enforce any of the terms of this Deed of Trust, Lender shall be entitled torecover such sum as the court may adjudge reasonable as attorneys' fees at trial and upon any appeal. Whether or not any court action isinvolved, and to the extent not prohibited by law, all reasonable expenses Lender incurs that in Lender's opinion are necessary at any time forthe protection of its interest or the enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interestat the Note rate from the date of the expenditure until repaid. Expenses covered by this paragraph include, without limitation, however subject toany limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit,       including attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction),appeals, and any anticipated post-judgment collection services, the cost of searching records, obtaining title reports (including foreclosurereports), surveyors' reports, and appraisal fees, title insurance, and fees for the Trustee, to the extent permitted by applicable law. Trustor alsowill pay any court costs, in addition to all other sums provided by law.Rights of Trustee.  Trustee shall have all of the rights and duties of Lender as set forth in this section.POWERS AND OBLIGATIONS OF TRUSTEE.  The following provisions relating to the powers and obligations of Trustee are part of this Deed ofTrust:Powers of Trustee.  In addition to all powers of Trustee arising as a matter of law, Trustee shall have the power to take the following actionswith respect to the Property upon the written request of Lender and Trustor: (a) join in preparing and filing a map or plat of the Real Property,including the dedication of streets or other rights to the public; (b) join in granting any easement or creating any restriction on the Real Property;and (c) join in any subordination or other agreement affecting this Deed of Trust or the interest of Lender under this Deed of Trust.Obligations to Notify.  Trustee shall not be obligated to notify any other party of a pending sale under any other trust deed or lien, or of anyaction or proceeding in which Trustor, Lender, or Trustee shall be a party, unless the action or proceeding is brought by Trustee.Trustee.  Trustee shall meet all qualifications required for Trustee under applicable law. In addition to the rights and remedies set forth above,with respect to all or any part of the Property, the Trustee shall have the right to foreclose by notice and sale, and Lender shall have the right toforeclose by judicial foreclosure, in either case in accordance with and to the full extent provided by applicable law.Successor Trustee.  Lender, at Lender's option, may from time to time appoint a successor Trustee to any Trustee appointed under this Deedof Trust by an instrument executed and acknowledged by Lender and recorded in the office of the recorder of San Bernardino County, State ofCalifornia. The instrument shall contain, in addition to all other matters required by state law, the names of the original Lender, Trustee, andTrustor, the book and page where this Deed of Trust is recorded, and the name and address of the successor trustee, and the instrument shallbe executed and acknowledged by Lender or its successors in interest. The successor trustee, without conveyance of the Property, shallsucceed to all the title, power, and duties conferred upon the Trustee in this Deed of Trust and by applicable law. This procedure for substitutionof Trustee shall govern to the exclusion of all other provisions for substitution.Acceptance by Trustee.  Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made a public record asprovided by law.NOTICES.  Any notice required to be given under this Deed of Trust shall be given in writing, and shall be effective when actually delivered, whenactually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed,when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near thebeginning of this Deed of Trust. Trustor requests that copies of any notices of default and sale be directed to Trustor's address shown near thebeginning of this Deed of Trust. All copies of notices of foreclosure from the holder of any lien which has priority over this Deed of Trust shall be sentto Lender's address, as shown near the beginning of this Deed of Trust. Any party may change its address for notices under this Deed of Trust bygiving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes,Trustor agrees to keep Lender informed at all times of Trustor's current address. Unless otherwise provided or required by law, if there is more thanone Trustor, any notice given by Lender to any Trustor is deemed to be notice given to all Trustors.STATEMENT OF OBLIGATION FEE.  Lender may collect a fee, not to exceed the maximum amount permitted by law, for furnishing the statement ofobligation as provided by Section 2943 of the Civil Code of California.JUDICIAL REFERENCE. If the waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes orcontroversies of any nature between them arising at any time shall be decided by a reference to a private judge, who shall be a retired state or federalcourt judge, mutually selected by the parties or, if they cannot agree, then any party may seek to have a private judge appointed in accordance withCalifornia Code of Civil Procedure §§ 638 and 640 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusivejurisdiction of the federal courts). The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Codeof Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including withoutlimitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shallbe closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a partydesires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party mayapply to the Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court underthe rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as itwould be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce alldiscovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected orappointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement ofdecision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time toexercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating tothe applicability, interpretation, and enforceability of this paragraph.The parties agree that time is of the essence in conducting the referenced proceedings. The parties shall promptly and diligently cooperate withone another and the referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of the dispute orcontroversy in accordance with the terms hereof. The costs shall be borne equally by the parties.CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County,State of California.       ORAL AGREEMENTS NOT EFFECTIVE. This Note or Agreement embodies the entire agreement and understanding between the parties heretowith respect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties withrespect to the subject matter hereof and shall remain in full force and effect in accordance with its terms and conditions. Moreover, any subsequentoral statements, negotiations, agreements or understandings of the parties shall not be effective against Lender unless (i) expressly stated in writing,(ii) duly approved and authorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shalldeem necessary or appropriate in the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Borrower shall not rely or act on any oral statements, negotiations, agreements or understandings between the parties at anytime whatsoever,including before or during any Lender approval process stated above. Borrower acknowledges and agrees that Borrower shall be responsible for itsown actions, including any detrimental reliance on any oral statements, negotiations, agreements or understandings between the parties and thatLender shall not be liable for any possible claims, counterclaims, demands, actions, causes of action, damages, costs, expenses and liabilitywhatsoever, known or unknown, anticipated or unanticipated, suspected or unsuspected, at law or in equity, originating in whole or in part inconnection with any oral statements, negotiations, agreements or understandings between the parties which the Borrower may now or hereafter claimagainst the Lender. Neither this Note or Agreement nor any other Related Document, nor any terms hereof or thereof may be amended,supplemented or modified except in accordance with the provisions of this section. Lender may from time to time, (a) enter into with Borrowerwritten amendments, supplements or modifications hereto and to the Related Documents or (b) waive, on such terms and conditions as Lender mayspecify in such instrument, any of the requirements of this Note or Agreement or the Related Documents or any Event Default and its consequences,if, but only if, such amendment, supplement, modification or waiver is (i) expressly stated in writing, (ii) duly approved and authorized by anappropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriate in thecommittee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Then such amendment, supplement,modification or waiver shall be effective only in the specific instance and specific purpose for which given.MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Deed of Trust:Amendments.  This Deed of Trust, together with any Related Documents, constitutes the entire understanding and agreement of the parties asto the matters set forth in this Deed of Trust. No alteration of or amendment to this Deed of Trust shall be effective unless given in writing andsigned by the party or parties sought to be charged or bound by the alteration or amendment.Annual Reports.  If the Property is used for purposes other than Trustor's residence, Trustor shall furnish to Lender, upon request, a certifiedstatement of net operating income received from the Property during Trustor's previous fiscal year in such form and detail as Lender shallrequire. "Net operating income" shall mean all cash receipts from the Property less all cash expenditures made in connection with the operationof the Property.Caption Headings.  Caption headings in this Deed of Trust are for convenience purposes only and are not to be used to interpret or define theprovisions of this Deed of Trust.Merger.  There shall be no merger of the interest or estate created by this Deed of Trust with any other interest or estate in the Property at anytime held by or for the benefit of Lender in any capacity, without the written consent of Lender.Governing Law.  This Deed of Trust will be governed by federal law applicable to Lender and, to the extent not preempted by federallaw, the laws of the State of California without regard to its conflicts of law provisions.  This Deed of Trust has been accepted byLender in the State of California.No Waiver by Lender.  Lender shall not be deemed to have waived any rights under this Deed of Trust unless such waiver is given in writingand signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any otherright. A waiver by Lender of a provision of this Deed of Trust shall not prejudice or constitute a waiver of Lender's right otherwise to demandstrict compliance with that provision or any other provision of this Deed of Trust. No prior waiver by Lender, nor any course of dealing betweenLender and Trustor, shall constitute a waiver of any of Lender's rights or of any of Trustor's obligations as to any future transactions. Wheneverthe consent of Lender is required under this Deed of Trust, the granting of such consent by Lender in any instance shall not constitute continuingconsent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretionof Lender.Severability.  If a court of competent jurisdiction finds any provision of this Deed of Trust to be illegal, invalid, or unenforceable as to anycircumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, theoffending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be somodified, it shall be considered deleted from this Deed of Trust. Unless otherwise required by law, the illegality, invalidity, or unenforceability ofany provision of this Deed of Trust shall not affect the legality, validity or enforceability of any other provision of this Deed of Trust.Successors and Assigns.  Subject to any limitations stated in this Deed of Trust on transfer of Trustor's interest, this Deed of Trust shall bebinding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Property becomes vested in a person otherthan Trustor, Lender, without notice to Trustor, may deal with Trustor's successors with reference to this Deed of Trust and the Indebtedness byway of forbearance or extension without releasing Trustor from the obligations of this Deed of Trust or liability under the Indebtedness.Time is of the Essence.  Time is of the essence in the performance of this Deed of Trust.Waive Jury.  To the extent permitted by applicable law, all parties to this Deed of Trust hereby waive the right to any jury trial in anyaction, proceeding, or counterclaim brought by any party against any other party.DEFINITIONS.  The following capitalized words and terms shall have the following meanings when used in this Deed of Trust. Unless specificallystated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms usedin the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined inthis Deed of Trust shall have the meanings attributed to such terms in the Uniform Commercial Code:        Beneficiary.  The word "Beneficiary" means East West Bank, and its successors and assigns.Borrower.  The word "Borrower" means Amphastar Pharmaceuticals, Inc. and includes all co-signers and co-makers signing the Note and alltheir successors and assigns.Deed of Trust.  The words "Deed of Trust" mean this Deed of Trust among Trustor, Lender, and Trustee, and includes without limitation allassignment and security interest provisions relating to the Personal Property and Rents.Default.  The word "Default" means the Default set forth in this Deed of Trust in the section titled "Default". Environmental Laws.  The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relatingto the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation,and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservationand Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.Event of Default.  The words "Event of Default" mean any of the events of default set forth in this Deed of Trust in the events of default sectionof this Deed of Trust.Guarantor.  The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness.Guaranty.  The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.Hazardous Substances.  The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical,chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperlyused, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used intheir very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listedunder the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or anyfraction thereof and asbestos.Improvements.  The word "Improvements" means all existing and future improvements, buildings, structures, mobile homes affixed on the RealProperty, facilities, additions, replacements and other construction on the Real Property.Indebtedness.  The word "Indebtedness" means all principal, interest, and other amounts, costs and expenses payable under the Note orRelated Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note or RelatedDocuments and any amounts expended or advanced by Lender to discharge Trustor's obligations or expenses incurred by Trustee or Lender toenforce Trustor's obligations under this Deed of Trust, together with interest on such amounts as provided in this Deed of Trust.Lender.  The word "Lender" means East West Bank, its successors and assigns. Note.  The word "Note" means the Promissory Note dated September 13, 2005 and Change In Terms Agreement dated January 8, 2016 in theprincipal amount of $3,724,840.78, from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of,consolidations of and substitutions for the promissory note or agreement. NOTICE TO TRUSTOR:  THE NOTE CONTAINS A VARIABLEINTEREST RATE.Personal Property.  The words "Personal Property" mean all equipment, fixtures, and other articles of personal property now or hereafter ownedby Trustor, and now or hereafter attached or affixed to the Real Property; together with all accessions, parts, and additions to, all replacementsof, and all substitutions for, any of such property; and together with all proceeds (including without limitation all insurance proceeds and refundsof premiums) from any sale or other disposition of the Property. However, should the Real Property be located in an area designated by theAdministrator of the Federal Emergency Management Agency as a special flood hazard area, Personal Property is limited to only those itemsspecifically covered (currently or hereafter) by Coverage A of the standard flood insurance policy issued in accordance with the National FloodInsurance Program or under equivalent coverage similarly issued by a private insurer to satisfy the National Flood Insurance Act (as amended).Property.  The word "Property" means collectively the Real Property and the Personal Property.Real Property.  The words "Real Property" mean the real property, interests and rights, as further described in this Deed of Trust.Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, security agreements,mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafterexisting, executed in connection with the Indebtedness; except that the words do not mean any guaranty or environmental agreement, whethernow or hereafter existing, executed in connection with the Indebtedness.Rents.  The word "Rents" means all present and future leases, rents, revenues, income, issues, royalties, profits, and other benefits derived fromthe Property together with the cash proceeds of the Rents.Trustee.  The word "Trustee" means EAST WEST INVESTMENT INC., A CALIFORNIA CORPORATION, whose address is 415 HUNTINGTONDRIVE, SAN MARINO, CA 91108 and any substitute or successor trustees.Trustor.  The word "Trustor" means Amphastar Pharmaceuticals, Inc.. TRUSTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF TRUST, AND TRUSTOR AGREES TO ITS TERMS,INCLUDING THE VARIABLE RATE PROVISIONS OF THE NOTE SECURED BY THIS DEED OF TRUST.       TRUSTOR:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals, Inc. By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of Amphastar Pharmaceuticals, Inc. _________________________________________________________________CERTIFICATE OF ACKNOWLEDGMENTA notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which thiscertificate is attached, and not the truthfulness, accuracy or validity of that document. STATE OF ____ California ________________________) ) SS COUNTY OF ____ San Bernardino __________________) On _ January 22 _________________________________, 20 16 _____ before me,__ _ E.R. Moreno, Notary Public _________________________, (here insert name and title of the officer)personally appeared Jack Zhang and William J. Peters, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), andthat by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.WITNESS my hand and official seal.Signature ______ /s/E.R. Moreno _____________________________________  (Seal)                _________________________________________________________________(DO NOT RECORD)REQUEST FOR FULL RECONVEYANCE(To be used only when obligations have been paid in full)To: _____________________________________________, TrusteeThe undersigned is the legal owner and holder of all Indebtedness secured by this Deed of Trust. All sums secured by this Deed of Trust have beenfully paid and satisfied. You are hereby directed, upon payment to you of any sums owing to you under the terms of this Deed of Trust or pursuant toany applicable statute, to cancel the Note secured by this Deed of Trust (which is delivered to you together with this Deed of Trust), and to reconvey,without warranty, to the parties designated by the terms of this Deed of Trust, the estate now held by you under this Deed of Trust. Please mail thereconveyance and Related Documents to:__________________________________________________________________________________________. Date: _____________________________________________Beneficiary: ______________________________       By: __________________________Its: __________________________________________________________________________________________________ ________________________________________________________________________LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\G01.FC TR-5156 PR-1 (M)        RECORDATION REQUESTED BY:East West BankLoan Servicing Department9300 Flair Drive, 6th FloorEl Monte, CA  91731WHEN RECORDED MAIL TO:East West BankLoan Service Department9300 Flair Drive, 6th FloorEl Monte, CA  91731SEND TAX NOTICES TO:Amphastar Pharmaceuticals, Inc.11570 6th StreetRancho Cucamonga, CA  91730FOR RECORDER'S USE ONLYASSIGNMENT OF RENTSTHIS ASSIGNMENT OF RENTS dated January 8, 2016, is made and executed between AMPHASTARPHARMACEUTICALS, INC., A CALIFORNIA CORPORATION, whose address is 11570 6th Street, Rancho Cucamonga,CA  91730 (referred to below as "Grantor") and East West Bank, whose address is 9300 Flair Drive, 6th Floor, ElMonte, CA  91731 (referred to below as "Lender").ASSIGNMENT.  For valuable consideration, Grantor hereby assigns, grants a continuing security interest in, andconveys to Lender all of Grantor's right, title, and interest in and to the Rents from the following described Propertylocated in San Bernardino County, State of California:See Exhibit "A", which is attached to this Assignment and made a part of this Assignment as if fully set forthherein.The Property or its address is commonly known as  11530 6th Street, Rancho Cucamonga, CA  91730.  TheAssessor's Parcel Number for the Property is 0229-262-37-0-000The following DEFINITION is hereby added to the Agreement:Interest Rate Derivative Documentation . The words "Interest Rate Derivative Documentation" mean each tradeconfirmation, and the international swaps and derivative association master and schedule agreement executed in connectionwith the Indebtedness.The DEFINITION of "Related Documents" is hereby amended to read as follows:Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements,security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, Interest Rate Derivative Documentation,and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with theIndebtedness; except that the words do not mean any guaranty or environmental agreement, whether now or hereafterexisting, executed in connection with the Indebtedness.This is an absolute assignment of Rents made in connection with an obligation secured by property pursuant toCalifornia Civil Code section 2938.THIS ASSIGNMENT IS GIVEN TO SECURE  (1) PAYMENT OF THE INDEBTEDNESS AND  (2) PERFORMANCE OF ANY AND ALLOBLIGATIONS OF GRANTOR UNDER THE NOTE, THIS ASSIGNMENT, AND THE RELATED DOCUMENTS.  THIS ASSIGNMENT IS GIVENAND ACCEPTED ON THE FOLLOWING TERMS:PAYMENT AND PERFORMANCE.  Except as otherwise provided in this Assignment or any Related Documents, Grantor shall pay to Lender all       amounts secured by this Assignment as they become due, and shall strictly perform all of Grantor's obligations under this Assignment. Unless anduntil Lender exercises its right to collect the Rents as provided below and so long as there is no default under this Assignment, Grantor may remain inpossession and control of and operate and manage the Property and collect the Rents, provided that the granting of the right to collect the Rents shallnot constitute Lender's consent to the use of cash collateral in a bankruptcy proceeding.GRANTOR'S REPRESENTATIONS AND WARRANTIES.  Grantor warrants that:Ownership.  Grantor is entitled to receive the Rents free and clear of all rights, loans, liens, encumbrances, and claims except as disclosed toand accepted by Lender in writing.Right to Assign.  Grantor has the full right, power and authority to enter into this Assignment and to assign and convey the Rents to Lender.No Prior Assignment.  Grantor has not previously assigned or conveyed the Rents to any other person by any instrument now in force.No Further Transfer.  Grantor will not sell, assign, encumber, or otherwise dispose of any of Grantor's rights in the Rents except as provided inthis Assignment.LENDER'S RIGHT TO RECEIVE AND COLLECT RENTS.  Lender shall have the right at any time, and even though no default shall have occurredunder this Assignment, to collect and receive the Rents. For this purpose, Lender is hereby given and granted the following rights, powers andauthority:Notice to Tenants.  Lender may send notices to any and all tenants of the Property advising them of this Assignment and directing all Rents tobe paid directly to Lender or Lender's agent.Enter the Property.  Lender may enter upon and take possession of the Property; demand, collect and receive from the tenants or from anyother persons liable therefor, all of the Rents; institute and carry on all legal proceedings necessary for the protection of the Property, includingsuch proceedings as may be necessary to recover possession of the Property; collect the Rents and remove any tenant or tenants or otherpersons from the Property.Maintain the Property.  Lender may enter upon the Property to maintain the Property and keep the same in repair; to pay the costs thereof andof all services of all employees, including their equipment, and of all continuing costs and expenses of maintaining the Property in proper repairand condition, and also to pay all taxes, assessments and water utilities, and the premiums on fire and other insurance effected by Lender on theProperty.Compliance with Laws.  Lender may do any and all things to execute and comply with the laws of the State of California and also all other laws,rules, orders, ordinances and requirements of all other governmental agencies affecting the Property.Lease the Property.  Lender may rent or lease the whole or any part of the Property for such term or terms and on such conditions as Lendermay deem appropriate.Employ Agents.  Lender may engage such agent or agents as Lender may deem appropriate, either in Lender's name or in Grantor's name, torent and manage the Property, including the collection and application of Rents.Other Acts.  Lender may do all such other things and acts with respect to the Property as Lender may deem appropriate and may actexclusively and solely in the place and stead of Grantor and to have all of the powers of Grantor for the purposes stated above.No Requirement to Act.  Lender shall not be required to do any of the foregoing acts or things, and the fact that Lender shall have performedone or more of the foregoing acts or things shall not require Lender to do any other specific act or thing.APPLICATION OF RENTS.  All costs and expenses incurred by Lender in connection with the Property shall be for Grantor's account and Lendermay pay such costs and expenses from the Rents. Lender, in its sole discretion, shall determine the application of any and all Rents received by it;however, any such Rents received by Lender which are not applied to such costs and expenses shall be applied to the Indebtedness. Allexpenditures made by Lender under this Assignment and not reimbursed from the Rents shall become a part of the Indebtedness secured by thisAssignment, and shall be payable on demand, with interest at the Note rate from date of expenditure until paid.FULL PERFORMANCE.  If Grantor pays all of the Indebtedness when due and otherwise performs all the obligations imposed upon Grantor underthis Assignment, the Note, and the Related Documents, Lender shall execute and deliver to Grantor a suitable satisfaction of this Assignment andsuitable statements of termination of any financing statement on file evidencing Lender's security interest in the Rents and the Property. Anytermination fee required by law shall be paid by Grantor, if permitted by applicable law.LENDER'S EXPENDITURES.  If any action or proceeding is commenced that would materially affect Lender's interest in the Property or if Grantorfails to comply with any provision of this Assignment or any Related Documents, including but not limited to Grantor's failure to discharge or pay whendue any amounts Grantor is required to discharge or pay under this Assignment or any Related Documents, Lender on Grantor's behalf may (but shallnot be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, securityinterests, encumbrances and other claims, at any time levied or placed on the Rents or the Property and paying all costs for insuring, maintaining andpreserving the Property. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Notefrom the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, atLender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with anyinstallment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) betreated as a balloon payment which will be due and payable at the Note's maturity. The Assignment also will secure payment of theseamounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.DEFAULT.  Each of the following, at Lender's option, shall constitute an Event of Default under this Assignment:Payment Default.  Grantor fails to make any payment when due under the Indebtedness.       Other Defaults.  Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Assignment or inany of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreementbetween Lender and Grantor.Default on Other Payments.  Failure of Grantor within the time required by this Assignment to make any payment for taxes or insurance, or anyother payment necessary to prevent filing of or to effect discharge of any lien.Default in Favor of Third Parties.  Any guarantor or Grantor defaults under any loan, extension of credit, security agreement, purchase or salesagreement, or any other agreement, in favor of any other creditor or person that may materially affect any of any guarantor's or Grantor'sproperty or ability to perform their respective obligations under this Assignment or any of the Related Documents.False Statements.  Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under thisAssignment or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomesfalse or misleading at any time thereafter.Defective Collateralization.  This Assignment or any of the Related Documents ceases to be in full force and effect (including failure of anycollateral document to create a valid and perfected security interest or lien) at any time and for any reason.Insolvency.  The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiverfor any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of anyproceeding under any bankruptcy or insolvency laws by or against Grantor.Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help,repossession or any other method, by any creditor of Grantor or by any governmental agency against the Rents or any property securing theIndebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event ofDefault shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditoror forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or asurety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve orbond for the dispute.Property Damage or Loss.  The Property is lost, stolen, substantially damaged, sold, or borrowed against.Events Affecting Guarantor.  Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantordies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.Adverse Change.  A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment orperformance of the Indebtedness is impaired.Cure Provisions.  If any default, other than a default in payment, is curable and if Grantor has not been given a notice of a breach of the sameprovision of this Assignment within the preceding twelve (12) months, it may be cured if Grantor, after Lender sends written notice to Grantordemanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days,immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues andcompletes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.RIGHTS AND REMEDIES ON DEFAULT.  Upon the occurrence of any Event of Default and at any time thereafter, Lender may exercise any one ormore of the following rights and remedies, in addition to any other rights or remedies provided by law:Accelerate Indebtedness.  Lender shall have the right at its option without notice to Grantor to declare the entire Indebtedness immediately dueand payable, including any prepayment fee that Grantor would be required to pay.Collect Rents.  Lender shall have the right, without notice to Grantor, to take possession of the Property and collect the Rents, includingamounts past due and unpaid, and apply the net proceeds, over and above Lender's costs, against the Indebtedness. In furtherance of thisright, Lender shall have all the rights provided for in the Lender's Right to Receive and Collect Rents Section, above. If the Rents are collectedby Lender, then Grantor irrevocably designates Lender as Grantor's attorney-in-fact to endorse instruments received in payment thereof in thename of Grantor and to negotiate the same and collect the proceeds. Payments by tenants or other users to Lender in response to Lender'sdemand shall satisfy the obligations for which the payments are made, whether or not any proper grounds for the demand existed. Lender mayexercise its rights under this subparagraph either in person, by agent, or through a receiver.Appoint Receiver.  Lender shall have the right to have a receiver appointed to take possession of all or any part of the Property, with the powerto protect and preserve the Property, to operate the Property preceding foreclosure or sale, and to collect the Rents from the Property and applythe proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted bylaw. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Property exceeds the Indebtedness by asubstantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.Other Remedies.  Lender shall have all other rights and remedies provided in this Assignment or the Note or by law.Election of Remedies.  Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to makeexpenditures or to take action to perform an obligation of Grantor under this Assignment, after Grantor's failure to perform, shall not affectLender's right to declare a default and exercise its remedies.Attorneys' Fees; Expenses.  If Lender institutes any suit or action to enforce any of the terms of this Assignment, Lender shall be entitled torecover such sum as the court may adjudge reasonable as attorneys' fees at trial and upon any appeal. Whether or not any court action isinvolved, and to the extent not prohibited by law, all reasonable expenses Lender incurs that in Lender's opinion are necessary at any time forthe protection of its interest or the enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interestat the Note rate from the date of the expenditure until repaid. Expenses covered by this paragraph include, without limitation,       however subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit,including attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction),appeals, and any anticipated post-judgment collection services, the cost of searching records, obtaining title reports (including foreclosurereports), surveyors' reports, and appraisal fees, title insurance, and fees for the Trustee, to the extent permitted by applicable law. Grantor alsowill pay any court costs, in addition to all other sums provided by law.JUDICIAL REFERENCE. If the waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes orcontroversies of any nature between them arising at any time shall be decided by a reference to a private judge, who shall be a retired state or federalcourt judge, mutually selected by the parties or, if they cannot agree, then any party may seek to have a private judge appointed in accordance withCalifornia Code of Civil Procedure §§ 638 and 640 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusivejurisdiction of the federal courts). The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Codeof Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including withoutlimitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shallbe closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a partydesires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party mayapply to the Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court underthe rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as itwould be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce alldiscovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected orappointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement ofdecision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time toexercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating tothe applicability, interpretation, and enforceability of this paragraph.The parties agree that time is of the essence in conducting the referenced proceedings. The parties shall promptly and diligently cooperate withone another and the referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of the dispute orcontroversy in accordance with the terms hereof. The costs shall be borne equally by the parties.CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County,State of California.ORAL AGREEMENTS NOT EFFECTIVE. This Note or Agreement embodies the entire agreement and understanding between the parties heretowith respect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties withrespect to the subject matter hereof and shall remain in full force and effect in accordance with its terms and conditions. Moreover, any subsequentoral statements, negotiations, agreements or understandings of the parties shall not be effective against Lender unless (i) expressly stated in writing,(ii) duly approved and authorized by an appropriate decision making committee of Lender on such terms and conditions as such committee shalldeem necessary or appropriate in the committee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Borrower shall not rely or act on any oral statements, negotiations, agreements or understandings between the parties at anytime whatsoever,including before or during any Lender approval process stated above. Borrower acknowledges and agrees that Borrower shall be responsible for itsown actions, including any detrimental reliance on any oral statements, negotiations, agreements or understandings between the parties and thatLender shall not be liable for any possible claims, counterclaims, demands, actions, causes of action, damages, costs, expenses and liabilitywhatsoever, known or unknown, anticipated or unanticipated, suspected or unsuspected, at law or in equity, originating in whole or in part inconnection with any oral statements, negotiations, agreements or understandings between the parties which the Borrower may now or hereafter claimagainst the Lender. Neither this Note or Agreement nor any other Related Document, nor any terms hereof or thereof may be amended,supplemented or modified except in accordance with the provisions of this section. Lender may from time to time, (a) enter into with Borrowerwritten amendments, supplements or modifications hereto and to the Related Documents or (b) waive, on such terms and conditions as Lender mayspecify in such instrument, any of the requirements of this Note or Agreement or the Related Documents or any Event Default and its consequences,if, but only if, such amendment, supplement, modification or waiver is (i) expressly stated in writing, (ii) duly approved and authorized by anappropriate decision making committee of Lender on such terms and conditions as such committee shall deem necessary or appropriate in thecommittee ’ s sole and absolute opinion and judgment and (iii) executed by an authorized officer of Lender. Then such amendment, supplement,modification or waiver shall be effective only in the specific instance and specific purpose for which given.MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Assignment:Amendments.  This Assignment, together with any Related Documents, constitutes the entire understanding and agreement of the parties as tothe matters set forth in this Assignment. No alteration of or amendment to this Assignment shall be effective unless given in writing and signedby the party or parties sought to be charged or bound by the alteration or amendment.Caption Headings.  Caption headings in this Assignment are for convenience purposes only and are not to be used to interpret or define theprovisions of this Assignment.Governing Law.  This Assignment will be governed by federal law applicable to Lender and, to the extent not preempted by federal law,the laws of the State of California without regard to its conflicts of law provisions.  This Assignment has been accepted by Lender inthe State of California.Merger.  There shall be no merger of the interest or estate created by this assignment with any other interest or estate in the Property at anytime held by or for the benefit of Lender in any capacity, without the written consent of Lender.Interpretation.  (1) In all cases where there is more than one Borrower or Grantor, then all words used in this Assignment in the singular       shall be deemed to have been used in the plural where the context and construction so require. (2) If more than one person signs thisAssignment as "Grantor," the obligations of each Grantor are joint and several. This means that if Lender brings a lawsuit, Lender may sue anyone or more of the Grantors. If Borrower and Grantor are not the same person, Lender need not sue Borrower first, and that Borrower need notbe joined in any lawsuit. (3) The names given to paragraphs or sections in this Assignment are for convenience purposes only. They are not tobe used to interpret or define the provisions of this Assignment.No Waiver by Lender.  Lender shall not be deemed to have waived any rights under this Assignment unless such waiver is given in writing andsigned by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. Awaiver by Lender of a provision of this Assignment shall not prejudice or constitute a waiver of Lender's right otherwise to demand strictcompliance with that provision or any other provision of this Assignment. No prior waiver by Lender, nor any course of dealing between Lenderand Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever theconsent of Lender is required under this Assignment, the granting of such consent by Lender in any instance shall not constitute continuingconsent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretionof Lender.Notices.  Any notice required to be given under this Assignment shall be given in writing, and shall be effective when actually delivered, whenactually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed,when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near thebeginning of this Assignment. Any party may change its address for notices under this Assignment by giving formal written notice to the otherparties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informedat all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given byLender to any Grantor is deemed to be notice given to all Grantors.Powers of Attorney.  The various agencies and powers of attorney conveyed on Lender under this Assignment are granted for purposes ofsecurity and may not be revoked by Grantor until such time as the same are renounced by Lender.Severability.  If a court of competent jurisdiction finds any provision of this Assignment to be illegal, invalid, or unenforceable as to anycircumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, theoffending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be somodified, it shall be considered deleted from this Assignment. Unless otherwise required by law, the illegality, invalidity, or unenforceability ofany provision of this Assignment shall not affect the legality, validity or enforceability of any other provision of this Assignment.Successors and Assigns.  Subject to any limitations stated in this Assignment on transfer of Grantor's interest, this Assignment shall be bindingupon and inure to the benefit of the parties, their successors and assigns. If ownership of the Property becomes vested in a person other thanGrantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Assignment and the Indebtedness by wayof forbearance or extension without releasing Grantor from the obligations of this Assignment or liability under the Indebtedness.Time is of the Essence.  Time is of the essence in the performance of this Assignment.Waive Jury.  To the extent permitted by applicable law, all parties to this Assignment hereby waive the right to any jury trial in anyaction, proceeding, or counterclaim brought by any party against any other party.Waiver of Right of Redemption.  NOTWITHSTANDING ANY OF THE PROVISIONS TO THE CONTRARY CONTAINED IN THISASSIGNMENT, GRANTOR HEREBY WAIVES ANY AND ALL RIGHTS OF REDEMPTION FROM SALE UNDER ANY ORDER OR JUDGMENTOF FORECLOSURE ON GRANTOR'S BEHALF AND ON BEHALF OF EACH AND EVERY PERSON, EXCEPT JUDGMENT CREDITORS OFGRANTOR, ACQUIRING ANY INTEREST IN OR TITLE TO THE PROPERTY SUBSEQUENT TO THE DATE OF THIS ASSIGNMENT.DEFINITIONS.  The following capitalized words and terms shall have the following meanings when used in this Assignment. Unless specificallystated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms usedin the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined inthis Assignment shall have the meanings attributed to such terms in the Uniform Commercial Code: Assignment.  The word "Assignment" means this ASSIGNMENT OF RENTS, as this ASSIGNMENT OF RENTS may be amended or modifiedfrom time to time, together with all exhibits and schedules attached to this ASSIGNMENT OF RENTS from time to time.Borrower.  The word "Borrower" means Amphastar Pharmaceuticals, Inc..Default.  The word "Default" means the Default set forth in this Assignment in the section titled "Default". Event of Default.  The words "Event of Default" mean any of the events of default set forth in this Assignment in the default section of thisAssignment.Grantor.  The word "Grantor" means Amphastar Pharmaceuticals, Inc.. Guarantor.  The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness.Guaranty.  The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.Indebtedness.  The word "Indebtedness" means all principal, interest, and other amounts, costs and expenses payable under the Note orRelated Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note or RelatedDocuments and any amounts expended or advanced by Lender to discharge Grantor's obligations or expenses incurred by Lender to enforceGrantor's obligations under this Assignment, together with interest on such amounts as provided in this Assignment.       Lender.  The word "Lender" means East West Bank, its successors and assigns. Note.  The word "Note" means the Promissory Note dated September 13, 2005 and Change In Terms Agreement dated January 8, 2016 in theprincipal amount of $3,724,840.78, from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of,consolidations of and substitutions for the promissory note or agreement.Property.  The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Assignment" sectionof this Assignment.Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, security agreements,mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafterexisting, executed in connection with the Indebtedness; except that the words do not mean any guaranty or environmental agreement, whethernow or hereafter existing, executed in connection with the Indebtedness.Rents.  The word "Rents" means all of Grantor's present and future rights, title and interest in, to and under any and all present and futureleases, including, without limitation, all rents, revenue, income, issues, royalties, bonuses, accounts receivable, cash or security deposits,advance rentals, profits and proceeds from the Property, and other payments and benefits derived or to be derived from such leases of everykind and nature, whether due now or later, including without limitation Grantor's right to enforce such leases and to receive and collect paymentand proceeds thereunder.         THE UNDERSIGNED ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS ASSIGNMENT, AND NOT PERSONALLY BUT AS ANAUTHORIZED SIGNER, HAS CAUSED THIS ASSIGNMENT TO BE SIGNED AND EXECUTED ON BEHALF OF GRANTOR ON JANUARY 8,2016.GRANTOR:AMPHASTAR PHARMACEUTICALS, INC. By: __________ /s/ JACK ZHANG ________________Jack Zhang, CEO of Amphastar Pharmaceuticals, Inc. By: _________ / s /WILLIAM J. PETERS ____________William J. Peters, CFO of Amphastar Pharmaceuticals, Inc. _________________________________________________________________CERTIFICATE OF ACKNOWLEDGMENTA notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which thiscertificate is attached, and not the truthfulness, accuracy or validity of that document. STATE OF ____ California ________________________) ) SS COUNTY OF ____ San Bernardino __________________) On _ January 22 ____________________________, 20 16 _____ before me, ,__ _E.R. Moreno, Notary Public _________________________, (here insert name and title of the officer)personally appeared Jack Zhang and William J. Peters, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), andthat by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.WITNESS my hand and official seal.Signature _ ______ /s/E.R. Moreno _____________________________________    (Seal)                ________________________________________________________________________ ________________________________________________________________________LaserPro, Ver. 15.4.20.033 Copr. D+H USA Corporation 1997, 2016. All Rights Reserved. - CA F:\PROD\LOANDOC\CFI\LPL\G14.FC TR-5156 PR-1 (M)      Exhibit 21.1Exhibit 21.1 SUBSIDIARIES OF THE COMPANY    State of Country of  Incorporation/ Incorporation/Company Name    Organization    OrganizationInternational Medication Systems, LimitedCaliforniaUnited States of AmericaArmstrong Pharmaceuticals, Inc .MassachusettsUnited States of AmericaAmphastar Nanjing Pharmaceuticals, Co., Ltd.ChinaAmphastar France Pharmaceuticals, S . A . S .France  Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S-8 No. 333-197054) pertaining to the 1999-2002 StockOption/Stock Issuance Plans, the Amended and Restated 2005 Equity Incentive Award Plan andthe 2014 Employee Stock Purchase Plan of Amphastar Pharmaceuticals, Inc.(2)Registration Statement (Form S-8 No. 333-203017) pertaining to the Amended and Restated2005 Equity Incentive Award Plan of Amphastar Pharmaceuticals, Inc.(3)Registration Statement (Form S-3 No. 333-205459) of Amphastar Pharmaceuticals, Inc.(4)Registration Statement (Form S-8 No. 333-205470) pertaining to the 2015 Equity Incentive Planof Amphastar Pharmaceuticals, Inc. of our report dated March 15, 2016, with respect to the consolidated financial statements ofAmphastar Pharmaceuticals, Inc. included in this Annual Report (Form 10-K)  of AmphastarPharmaceuticals, Inc. for the year ended December 31, 2015.   /s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 15, 2016  EXHIBIT 31.1EXHIBIT 31.1Certification of Chief Executive Officer p ursuant to Rule s 13a-14(a) and 15d-14(a) of the Securities Exchange Act of1934 , as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Jack Y. Zhang, Ph.D . , Chief Executive Officer, certify that:1. I have reviewed this annual report on Form 10-K of Amphastar Pharmaceuticals, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent function):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: March 15 , 201 6   By:/ s /JACK Y. ZHANGJack Y. ZhangChief Executive Officer(Principal Executive Officer) EXHIBIT 31.2EXHIBIT 31.2Certification of Chief Financial Officer p ursuant to Rule s 13a-14(a) and 15d-14(a) of the Securities Exchange Act of1934 , as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, William J. Peters, Chief Financial Officer, certify that:1. I have reviewed this annual report on Form 10-K of Amphastar Pharmaceuticals, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent function):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: March 15 , 201 6   By:/ s /WILLIAM J. PETERSWilliam J. PetersChief Financial Officer(Principal Financial and Accounting Officer) EXHIBIT 32.1EXHIBIT 32.1Certification of Chief Executive Officer p ursuant to 18 U.S.C. Section 1350, as a dopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002The undersigned officer of Amphastar Pharmaceuticals, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:(i) the Annual Report on Form 10-K of the Company for the year ended December 31, 201 5 (the “Report”) fully complieswith the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 15 , 201 6   By:/s/JACK Y. ZHANGJack Y. ZhangChief Executive Officer(Principal Executive Officer) The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filedfor purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference intoany filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in suchfiling. Exhibit 32.2Exhibit 32.2Certification of Chief Financial Officer p ursuant to 18 U.S.C. Section 1350, as a dopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002The undersigned officer of Amphastar Pharmaceuticals, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:(i) the Annual Report on Form 10-K of the Company for the year ended December 31, 201 5 (the “Report”) fully complieswith the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 15 , 201 6   By:/s/WILLIAM J. PETERSWilliam J. PetersChief Financial Officer(Principal Financial and Accounting Officer) The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filedfor purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference intoany filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in suchfiling. 

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