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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

     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 001-38709


Osmotica Pharmaceuticals plc

(Exact name of registrant as specified in its charter)


Ireland

   

Not Applicable

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

400 Crossing Boulevard

Bridgewater, NJ 08807

(Address of principal executive offices)

(Zip Code)

(908) 809-1300

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary Shares

OSMT

Nasdaq Global Select Market

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 that the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  .

There were 62,585,832 ordinary shares ($0.01 nominal value per share) outstanding as of November 09, 2020.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans, including the impact of the COVID-19 pandemic on the sufficiency of our product supply, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "plan," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives and financial needs. Examples of forward-looking statements include, among others, statements we make regarding: our intentions, beliefs or current expectations concerning, among other things, future operations; future financial performance, trends and events, particularly relating to sales of current products and the development, approval and introduction of new products; FDA and other regulatory applications, approvals and actions; the continuation of historical trends; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs.

We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include the following:

if we are unable to successfully develop or commercialize new products, or do so on a timely or cost effective basis, our operating results will suffer;
due to our dependence on a limited number of products, our business could be materially adversely affected if one or more of our key products do not perform as well as expected;
failures of or delays in clinical trials could result in increased costs to us and could jeopardize or delay our ability to obtain regulatory approval and commence sales of new products;
we are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes;
as of September 30, 2020, we had total outstanding debt of approximately $219.3 million (net of deferred financing costs), and we had unused commitments of $50.0 million under our senior secured credit facilities. Our substantial debt could adversely affect our liquidity and our ability to raise additional capital to fund operations and could limit our ability to pursue our growth strategy or react to changes in the economy or our industry;
we face intense competition from both brand and generic companies, which could significantly limit our growth and materially adversely affect our financial results;
a business interruption at our manufacturing facility, our warehouses or at facilities operated by third parties that we rely on could have a material adverse effect on our business;
our profitability depends on our major customers, and if our relationships with them do not continue as expected, our business, prospects and results of operations could materially suffer;
if we are unable to develop or maintain our sales capabilities, we may not be able to effectively market or sell our products;

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our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business;
our profitability depends on coverage and reimbursement by governmental authorities and other third-party payors and healthcare reform and other future legislation creates uncertainty and may lead to reductions in coverage or reimbursement levels;
we are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations;
our products or product candidates may cause adverse side effects that could delay or prevent their regulatory approval, or result in significant negative consequences following regulatory approval;
manufacturing or quality control problems may damage our reputation, require costly remedial activities or otherwise negatively impact our business;
our business may be adversely affected by the continuing coronavirus pandemic; and
other factors that are described in the "Risk Factors" section of our Annual Report on Form 10-K that was filed on March 19, 2020 our Quarterly Reports on Form 10-Q that were filed on May 12, 2020 and August 11, 2020, and this Quarterly Report on Form 10-Q.

The forward-looking statements included in this report are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

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TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited).

5

Condensed Consolidated Balance Sheets – September 30, 2020 and December 31, 2019

5

Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and nine months ended September 30, 2020 and 2019

6

Condensed Consolidated Statement of Shareholders’ Equity – Three and nine months ended September 30, 2020 and 2019

7

Condensed Consolidated Statements of Cash Flows - Three and nine months ended September 30, 2020 and 2019

8

Notes to Condensed Consolidated Financial Statements

9

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

24

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

47

ITEM 4. Controls and Procedures.

48

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

48

ITEM 1A. Risk Factors.

49

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

50

ITEM 6. Exhibits.

51

SIGNATURES

51

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

OSMOTICA PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

    

September 30, 2020

    

December 31, 2019

    

(Unaudited)

Assets

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

126,093

$

95,865

Trade accounts receivable, net

 

21,569

 

43,914

Inventories, net

 

21,703

 

21,305

Prepaid expenses and other current assets

 

6,805

 

11,546

Total current assets

 

176,170

 

172,630

Property, plant and equipment, net

 

28,664

 

30,238

Operating lease assets

3,233

4,983

Intangibles, net

 

117,904

 

153,986

Goodwill

 

100,855

 

100,855

Other non-current assets

 

420

 

563

Total assets

$

427,246

$

463,255

Liabilities and Shareholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

7,909

$

8,495

Accrued liabilities

 

45,376

 

65,253

Current portion of obligation under finance leases

65

127

Current portion of lease liability

1,596

2,062

Total current liabilities

 

54,946

 

75,937

Long-term debt, net of non-current deferred financing costs

 

219,290

 

267,950

Long-term portion of obligation under finance leases

 

8

 

44

Long-term portion of lease liability

1,790

3,116

Deferred taxes

 

526

 

1,500

Total liabilities

 

276,560

 

348,547

Commitments and contingencies (See Note 11)

 

  

 

  

Shareholders' equity:

 

  

 

  

Ordinary shares ($0.01 nominal value 400,000,000 shares authorized, 63,105,832 and 51,845,742 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

631

518

Preferred shares ($0.01 nominal value 40,000,000 shares authorized, no shares issued and outstanding)

Euro deferred shares (1.00 nominal value 25,000 shares authorized, no shares issued and outstanding)

Additional paid in capital

550,020

489,440

Accumulated deficit

(397,736)

(373,021)

Accumulated other comprehensive loss

 

(2,229)

 

(2,229)

Total shareholders' equity

 

150,686

 

114,708

Total liabilities and shareholders' equity

$

427,246

$

463,255

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

    

  

  

  

  

Net product sales

$

31,175

$

64,041

$

113,783

$

176,657

Royalty revenue

 

432

 

1,325

 

2,875

 

2,826

Licensing and contract revenue

 

25,564

 

95

 

26,694

 

637

Total revenues

 

57,171

 

65,461

 

143,352

 

180,120

Cost of goods sold (inclusive of amortization of intangibles)

 

16,717

27,312

 

57,301

 

89,160

Gross profit

 

40,454

 

38,149

 

86,051

 

90,960

Selling, general and administrative expenses

 

23,543

24,751

 

61,276

 

71,919

Research and development expenses

 

3,726

8,285

 

15,185

 

23,410

Impairment of intangibles

19,539

128,113

23,157

253,879

Total operating expenses

 

46,808

 

161,149

 

99,618

 

349,208

Operating loss

 

(6,354)

 

(123,000)

 

(13,567)

 

(258,248)

Interest expense and amortization of debt discount

 

3,564

4,504

 

11,368

 

13,555

Other non-operating gain

 

(153)

(177)

 

(241)

 

(719)

Total other non-operating expense

 

3,411

 

4,327

 

11,127

 

12,836

Loss before income taxes

 

(9,765)

(127,327)

 

(24,694)

 

(271,084)

Income tax benefit (expense)

 

1,132

 

14,623

 

(21)

 

26,824

Net and other comprehensive loss

$

(8,633)

$

(112,704)

$

(24,715)

$

(244,260)

Loss per share attributable to shareholders

 

  

 

  

 

  

 

  

Basic and Diluted

$

(0.14)

$

(2.15)

$

(0.41)

$

(4.65)

Weighted average shares basic and diluted

 

  

 

  

 

  

 

  

Basic and Diluted

 

62,785,866

52,476,540

 

59,979,834

52,504,518

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019

(Unaudited)

(In thousands, except share data)

  

  

  

  

Accumulated

  

other

Ordinary shares

Additional

Accumulated

comprehensive

Shares

Amount

paid in capital

deficit

loss

Total

Balance at January 1, 2019

52,518,924

$

525

$

487,288

$

(102,120)

$

(1,846)

$

383,847

Net loss

(6,687)

(6,687)

Share compensation

1,169

1,169

Balance at March 31, 2019

52,518,924

$

525

$

488,457

$

(108,807)

$

(1,846)

$

378,329

Net loss

(124,869)

(124,869)

Change in foreign currency translation

Share compensation

1,327

1,327

Balance at June 30, 2019

52,518,924

$

525

$

489,784

$

(233,676)

$

(1,846)

$

254,787

Repurchase of ordinary shares

(355,571)

(4)

(1,335)

(1,338)

Net loss

(112,705)

(112,705)

Change in foreign currency translation

(383)

(383)

Share compensation

1,335

1,335

Balance at September 30, 2019

52,163,353

$

521

$

489,784

$

(346,380)

$

(2,229)

$

141,696

Balance at January 1, 2020

51,845,742

$

518

$

489,440

$

(373,021)

$

(2,229)

$

114,708

Net loss

(3,083)

(3,083)

Share compensation

181,966

2

1,107

1,109

Payments for taxes related to the net share settlement of equity awards

(616)

(616)

Proceeds from issuance of ordinary shares, net of offering costs

6,900,000

69

31,720

31,789

Repurchase of ordinary shares

(29,000)

(167)

(167)

Balance at March 31, 2020

58,898,708

$

589

$

521,484

$

(376,104)

$

(2,229)

$

143,740

Net loss

(12,999)

(12,999)

Share compensation

31,295

1

1,221

1,222

Payments for taxes related to the net share settlement of equity awards

(133)

(133)

Proceeds from issuance of ordinary shares, net of offering costs

Repurchase of ordinary shares

(169,257)

(2)

(917)

(919)

Balance at June 30, 2020

58,760,746

$

588

$

521,655

$

(389,103)

$

(2,229)

$

130,911

Net loss

(8,633)

(8,633)

Share compensation

22,554

1,508

1,508

Proceeds from issuance of ordinary shares, net of offering costs

5,000,000

50

30,599

30,649

Repurchase of ordinary shares

(677,468)

(7)

(3,742)

(3,749)

Balance at September 30, 2020

63,105,832

$

631

$

550,020

$

(397,736)

$

(2,229)

$

150,686

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(24,715)

$

(244,260)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Depreciation and amortization

 

16,589

 

50,605

Share compensation

3,836

3,831

Impairment of intangibles

 

23,157

 

253,879

Deferred income tax benefit

 

(974)

 

(28,493)

Loss on sale of fixed and leased assets

281

75

Bad debt provision

 

6

 

(160)

Amortization of deferred financing and loan origination fees

985

1,000

Write off of deferred financing fees in connection with prepayment

496

Change in operating assets and liabilities:

 

 

Trade accounts receivable, net

 

22,339

 

22,722

Inventories, net

 

(398)

 

(2,857)

Prepaid expenses and other current assets

 

4,741

 

12,536

Trade accounts payable

 

(586)

 

(14,964)

Accrued and other current liabilities

 

(19,915)

 

(21,022)

Net cash provided by operating activities

 

25,842

 

32,892

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sale of fixed and leased assets

50

12

Payments on disposal of leased assets

(209)

(34)

Purchase of property, plant and equipment

 

(2,213)

(3,042)

Net cash used in investing activities

 

(2,372)

 

(3,064)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Payments on finance lease obligations

 

(98)

(97)

Proceeds from public offering, net of issuance costs

62,440

Debt repayment

(50,000)

Repurchases of ordinary shares

(4,835)

(1,338)

Payments for taxes related to net share settlement of equity awards

(749)

Proceeds from insurance financing loan

 

1,314

Repayment of insurance financing loan

 

(2,691)

Net cash provided by (used in) financing activities

 

6,758

 

(2,812)

Net change in cash and cash equivalents

 

30,228

 

27,016

Effect on cash of changes in exchange rate

 

164

Cash and cash equivalents, beginning of period

 

95,865

70,834

Cash and cash equivalents, end of period

$

126,093

$

98,014

Supplemental disclosure of cash and non-cash transactions:

 

 

  

Cash paid for interest

$

12,014

$

11,202

Cash paid for taxes

$

1,435

$

545

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Organization and Nature of Operations

Osmotica Pharmaceuticals plc, together with its subsidiaries, is a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations. The Company generates revenues across an existing portfolio of promoted specialty neurology and women’s health products, as well as non-promoted products, many of which are primarily complex formulations of generic drugs.

Osmotica Pharmaceuticals plc (formerly known as Lilydale Limited and Osmotica Pharmaceuticals Limited) is an Irish public limited company. Osmotica Holdings S.C.Sp. acquired Osmotica Pharmaceuticals plc on April 30, 2018 for the purpose of facilitating an offering of ordinary shares in an initial public offering (“IPO”). On October 22, 2018, Osmotica Pharmaceuticals plc completed its IPO, in which it issued and allotted 7,647,500 ordinary shares at a public offering price of $7.00 per share. The number of shares issued in the IPO reflected the exercise in full of the underwriters’ option to purchase 997,500 additional ordinary shares. In addition, the Company issued and allotted 2,014,285 ordinary shares at the public offering price in a private placement to investment funds affiliated with Avista Capital Partners, Altchem Limited and an entity controlled by the Company’s Chief Financial Officer. The aggregate net proceeds from the IPO and the private placement were approximately $58.1 million after deducting underwriting discounts and commissions and estimated offering expenses.

Immediately prior to the IPO and prior to the commencement of trading of Osmotica Pharmaceuticals plc’s ordinary shares on the Nasdaq Global Select Market, Osmotica Holdings S.C.Sp. undertook a series of restructuring transactions that resulted in Osmotica Pharmaceuticals plc being the direct parent of Osmotica Holdings S.C.Sp with each holder of common units of Osmotica Holdings S.C.Sp. receiving approximately 42.84 ordinary shares of Osmotica Pharmaceuticals plc in exchange for each such common unit. In addition, each holder of an option to purchase common units of Osmotica Holdings S.C.Sp. received an option to purchase the number of ordinary shares of Osmotica Pharmaceuticals plc determined by multiplying the number of units underlying such option by approximately 42.84 (rounded down to the nearest whole share) and dividing the exercise price per unit for such option by approximately 42.84 (rounded up to the nearest whole cent). These transactions are referred to as the “Reorganization”. Accordingly, all share and share amounts for all periods presented in the accompanying financial statements have been adjusted retroactively, where applicable, to reflect the Reorganization.

Until the Reorganization, Osmotica Pharmaceuticals plc did not conduct any operations (other than activities incidental to its formation, the Reorganization and the pursuit of an IPO). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. became the historical financial statements of Osmotica Pharmaceuticals plc. Accordingly, the accompanying unaudited condensed consolidated financial information as of and for the three and nine months ended September 30, 2020 included herein reflect the financial information of Osmotica Holdings S.C.Sp.

Osmotica Holdings S.C.Sp.is a Luxembourg special limited partnership, formed on December 3, 2015 in connection with a business combination (the “Merger”), effective February 3, 2016, pursuant to a definitive agreement among Osmotica Holdings S.C.Sp., Vertical/Trigen Holdings, LLC (“Vertical/Trigen”) and its members, and Osmotica Holdings Corp Limited and its shareholders, among others. Osmotica Holdings S.C.Sp. and several other holding companies and partnerships were formed as a result of the Merger. Pursuant to the Merger, Vertical/Trigen was deemed to be the accounting acquirer.

Unless otherwise indicated or required by the context, references throughout to “Osmotica,” or the “Company”, refer to (i) prior to the completion of the Reorganization, Osmotica Holdings S.C.Sp. and its consolidated subsidiaries, including, from and after April 30, 2018, Osmotica Pharmaceuticals plc, and (ii) following the completion of the Reorganization, Osmotica Pharmaceuticals plc and its consolidated subsidiaries, including Osmotica Holdings S.C.Sp.

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim reporting. In management’s opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by GAAP has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three and nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2020 or any period thereafter. The accompanying Condensed Consolidated Balance Sheet data as of December 31, 2019 was derived from the audited consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019.

Basic and Diluted Loss per Share—Basic and diluted net loss per share is determined by dividing net loss by the weighted average ordinary shares outstanding during the period. For all periods presented with a net loss, the shares underlying the ordinary share options and restricted stock units have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share are the same for periods with a net loss.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive as of September 30, 2020 and 2019:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Restricted stock units

2,785,197

1,438,642

2,785,197

1,237,614

Options to purchase ordinary shares

2,961,875

3,152,162

2,961,875

3,173,065

Fair Value of Financial Instruments—The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable, accounts payable and debt approximate book value because of the short maturity of these financial instruments.

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

Licensing and Contract RevenueThe transfer of the license is a performance obligation satisfied at a point in time. For arrangements that include non-sales based milestones, including milestone payments based on regulatory approvals or other activities, and the license is deemed to be the predominant item to which the milestones relate, the Company recognizes revenue at the later of a) when the milestone activity is achieved, or b) when the performance obligation to which some or all the milestone has been allocated has been satisfied (or partially satisfied). For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied).

Segment Reporting—The Company operates in one business segment which focuses on developing and commercializing pharmaceutical products that target markets with underserved patient populations. The Company’s business offerings have similar economic and other characteristics, including the nature of products, manufacturing and acquiring processes, types of customers, distribution methods and regulatory environment. The chief operating decision maker (“CODM”) reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions. The condensed consolidated financial statements reflect the financial results of the Company’s one reportable operating segment. The Company has no significant revenues or tangible assets outside of the United States.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new “expected loss model that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. The estimate of credit losses must be based on all relevant information including historical information, current conditions, and reasonable and supportable forecasts that affect the collectability of the amounts. The Company adopted this standard on January 1, 2020, and there was no material impact to the Company’s consolidated financial statements. The Company has provided additional disclosure as required by the standard upon adoption. Refer to Note 4 for additional details.

.

Note 3. Revenues

The Company’s performance obligations are to provide its pharmaceutical products based upon purchase orders from distributors. The performance obligation is satisfied at a point in time, typically upon delivery, when the customer obtains control of the pharmaceutical product. The Company invoices its customers after the products have been delivered and invoice payments are generally due within 30 to 60 days of invoice date.

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The following table disaggregates revenue from contracts with customers by pharmaceutical products (dollars in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

Pharmaceutical Product

    

2020

    

2019

    

2020

    

2019

    

Venlafaxine ER (VERT)

$

3,583

$

22,487

$

22,059

$

62,387

Methylphenidate ER

 

6,316

 

17,879

 

23,769

55,769

Divigel

 

7,801

 

6,416

 

23,032

18,833

Nitrofurantoin

2,242

1,990

9,205

1,990

Lorzone

 

214

 

3,750

 

4,280

12,082

OB Complete

 

1,629

 

2,589

 

5,266

7,195

Other

 

9,390

 

8,930

 

26,172

18,401

Net product sales

 

31,175

 

64,041

 

113,783

 

176,657

Royalty revenue

 

432

 

1,325

 

2,875

2,826

License and contract revenue

 

25,564

 

95

 

26,694

637

Total revenues

$

57,171

$

65,461

$

143,352

$

180,120

On July 28, 2020, the Company entered into a License Agreement with Santen Pharmaceutical Co. Ltd, granting Santen the exclusive development, registration, and commercialization rights to RVL-1201 in Japan, China, and other Asian countries as well as EMEA countries. Under the agreement the Company received an upfront license milestone payment of $25.0 million which was recognized as license and contract revenue in the quarter as all performance obligations were met. The Company is also entitled to royalty payments on net sales of RVL-1201 in Santen commercializations territories.

Development and regulatory milestone payments will be recognized when the Company is reasonably certain that they would not be reversed. Because the commercial milestone and royalty-based payments are associated with the transfer of a license, a performance obligation that was satisfied at or near the inception of the contract, the Company will recognize these payments when the sales triggering the payments are achieved. The Company intends to use estimates provided by Santen and will perform true-ups on a quarterly basis.

When the Company receives consideration from a customer, or such consideration is unconditionally due from a customer prior to the transfer of products to the customer under the terms of a contract, the Company records a contract liability. The Company classifies contract liabilities as deferred revenue. The Company had an immaterial amount of deferred revenue as of September 30, 2020. Upon adoption of ASC Topic 606, the Company did not have any contract assets or liabilities. The Company has elected to apply the exemption under paragraph 606-10-50-14(a) related to remaining performance obligations as all open purchase orders are expected to be satisfied with a period of one year from the date of the purchase order.

Contract assets primarily relate to rights to consideration for goods or services transferred to the customer when the right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional. The Company had no contract assets as of September 30, 2020. The Company has no costs to obtain or fulfill contracts meeting the capitalization criteria under ASC Topic 340, Other Assets and Deferred Costs.

Note 4. Accounts Receivable, Sales and Allowances

The nature of the Company’s business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, allowance for

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

credit losses under the new standard and discounts given to customers. This is typical of the pharmaceutical industry and not necessarily specific to the Company. Depending on the product, the end-user customer, the specific terms of national supply contracts and the particular arrangements with the Company’s wholesale customers, certain rebates, chargebacks and other credits are deducted from the Company’s accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end-user customer (which in turn depends on the specific end-user customer, each having its own pricing arrangement, which entitles it to a particular deduction). This process can lead to partial payments against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

Accounts receivable result primarily from sales of pharmaceutical products, amounts due under revenue sharing, license and royalty arrangements, which inherently involves, in the ordinary course of business, estimates relating to allowances for product returns, chargebacks, rebates, credit losses and discounts given to customers. Credit is extended based on the customer’s financial condition, and, generally, collateral is not required. The Company ages its accounts receivable using the corresponding sale date of the transaction and considers accounts past due based on terms agreed upon in the transaction, which is generally 30 to 60 days for branded and generic sales, depending on the customer and the products purchased.

The Company is exposed to credit losses primarily through sales of its products. Prior to January 1, 2020, accounts receivable were recorded at cost less an allowance for doubtful accounts. Beginning January 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses that are not expected to be recovered. The Company’s expected loss methodology for accounts receivable is developed using historical collection experience, a review of the current status of customer’s trade receivables, and current and future market conditions. Due to the short-term nature of such receivables, the estimate of accounts receivable that may not be collected is based on the aging of accounts receivable balances and the financial condition of customers. The Company’s monitoring activities include timely account reconciliations, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written-off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding a novel strain of the coronavirus, referred to as 2019-ncov, COVID-19 coronavirus epidemic, or COVID-19, and determined that the estimate of credit losses was not significantly impacted.

With the exception of the allowance for credit losses, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected as a reduction of revenues in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Trade accounts receivable, net consisted of the following (dollars in thousands):

    

September 30, 

    

December 31,

2020

2019

Gross trade accounts receivable

 

  

 

  

Trade accounts receivable

$

33,709

$

70,958

Royalty accounts receivable

 

1,098

 

702

Other receivable

 

1,914

 

2,186

Less reserves for:

 

 

Chargebacks

 

(7,580)

 

(14,624)

Commercial rebates

 

(6,874)

 

(13,579)

Discounts and allowances

 

(698)

 

(1,591)

Allowance for credit losses

 

 

(138)

Total trade accounts receivable, net

$

21,569

$

43,914

The Company recorded the following adjustments to gross product sales (dollars in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

    

Gross product sales

$

62,491

$

145,714

$

251,020

$

628,668

Less provisions for:

 

 

 

Chargebacks

 

(19,352)

 

(52,195)

 

(96,664)

(290,230)

Government and managed care rebates

 

(4,301)

 

(6,792)

 

(14,048)

(16,854)

Commercial rebates

 

(5,227)

 

(25,818)

 

(17,736)

(130,621)

Product returns

 

(499)

 

7,204

 

(1,112)

2,027

Discounts and allowances

 

(1,373)

 

(3,045)

 

(5,520)

(12,839)

Advertising and promotions

 

(564)

 

(1,027)

 

(2,157)

(3,494)

Net product sales

$

31,175

$

64,041

$

113,783

$

176,657

The activity in the Company’s allowance for customer deductions against trade accounts receivable was as follows (dollars in thousands):

    

    

    

Discounts

    

    

Commercial

and

Credit

Chargebacks

Rebates

Allowances

Losses

Total

Balance at December 31, 2018

$

38,861

$

49,232

$

3,510

$

194

$

91,797

Provision

345,366

147,173

15,719

(190)

508,068

Charges processed

(369,603)

(182,826)

(17,638)

134

(569,933)

Balance at December 31, 2019

$

14,624

$

13,579

$

1,591

$

138

$

29,932

Provision

96,664

17,736

5,520

6

119,926

Charges processed

(103,708)

(24,441)

(6,413)

(144)

(134,706)

Balance at September 30, 2020

$

7,580

$

6,874

$

698

$

$

15,152

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The activity in the Company’s accrued liabilities for customer deductions by account was as follows (dollars in thousands):

    

    

Government and

    

Product

Managed Care

Returns

Rebates

Total

Balance at December 31, 2018

$

48,464

$

9,981

$

58,445

Provision

(3,932)

20,092

16,160

Charges processed

(11,075)

(25,206)

(36,281)

Balance at December 31, 2019

$

33,457

$

4,867

$

38,324

Provision

1,112

14,048

15,160

Charges processed

(11,967)

(15,040)

(27,007)

Balance at September 30, 2020

$

22,602

$

3,875

$

26,477

Provisions and utilizations of provisions activity in the current period which relate to the prior period revenues are not provided because to do so would be impracticable. The current systems and processes of the Company do not capture the chargeback and rebate settlements by the period in which the original sales transaction was recorded. The Company uses a combination of factors and applications to estimate the dollar amount of reserves for chargebacks and rebates at each month end. Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. The Company regularly monitors the reserves based on an analysis of the Company’s product sales and most recent claims, wholesaler inventory, current pricing, and anticipated future pricing changes. If amounts are different from the estimate due to changes from estimated rates, accrual rate adjustments are considered prospectively when determining provisions in accordance with authoritative GAAP.

Note 5. Inventories

The components of inventories, net of allowances, were as follows (dollars in thousands):

    

September 30, 

    

December 31,

2020

2019

Finished goods

$

16,526

$

15,319

Work in process

 

603

 

778

Raw materials and supplies

 

4,574

 

5,208

$

21,703

$

21,305

The Company maintains an allowance for excess and obsolete inventory, as well as inventory where its cost is in excess of its net realizable value. The activity in the allowance for excess, obsolete, and net realizable value inventory account was as follows (dollars in thousands):

    

September 30, 

December 31,

2020

2019

Balance at beginning of period

$

1,069

$

1,561

Provision

 

1,035

 

2,322

Charges processed

 

(207)

 

(2,814)

Balance at end of period

$

1,897

$

1,069

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 6. Goodwill and Other Intangible Assets

The Company tests goodwill and indefinite-lived intangible assets for impairment annually as of October 1st, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. There were no events or circumstances requiring the Company to test for impairment of goodwill during the quarter. The carrying value of goodwill was $100.9 million as of September 30, 2020 and December 31, 2019.

During the second and third quarters of 2020 circumstances and events pertaining to certain of our intangible assets related to generic competition and expectations of lower future cash flows prompted the Company to evaluate these assets for impairment. After evaluating these assets for recoverability, we further evaluated two intangible assets and determined that their fair value had decreased below their carrying value and thus fully impaired one asset and partially wrote down the carrying value of the asset. Accordingly, Developed Technology was impaired by $3.6 million in the period ended June 30, 2020 and Product Rights was therefore impaired by $19.5 million during the period ended September 30, 2020.

The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period for those assets that were not already fully amortized (dollars in thousands):

September 30, 2020

    

    

    

    

    

Weighted

Average

Remaining

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Impairment

Amount

(Years)

Distribution Rights

$

33,714

$

(23,492)

$

$

10,222

 

9.3

Product Rights

 

202,567

 

(162,150)

 

(19,539)

 

20,878

 

2.3

Tradenames

 

13,485

 

(3,565)

 

 

9,920

 

14.2

Developed Technology

 

52,466

 

(35,964)

 

(3,618)

 

12,884

 

10.9

IPR&D

 

64,000

 

 

 

64,000

 

Indefinite Lived

$

366,232

$

(225,171)

$

(23,157)

$

117,904

 

  

The gross carrying amounts and accumulated amortization in the table above is inclusive of $15.0 million and have been fully impaired in the table above and inclusive as of September 30, 2020.

December 31, 2019

    

    

    

    

    

Weighted

Average

Gross

Net

Remaining

Carrying

Accumulated

Carrying

Amortization

Amount

Amortization

Impairment

Amount

Period (Years)

Distribution Rights

$

98,433

$

(22,291)

$

(64,719)

$

11,423

 

10.1

Product Rights

 

348,600

 

(152,348)

 

(146,033)

 

50,219

 

3.1

Tradenames

 

13,485

 

(3,035)

 

 

10,450

 

15.0

Developed Technology

 

125,461

 

(34,572)

 

(72,995)

 

17,894

 

10.9

IPR&D

 

64,000

 

 

 

64,000

 

Indefinite Lived

$

649,979

$

(212,246)

$

(283,747)

$

153,986

 

  

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The gross carrying amounts and accumulated amortization in the table above is inclusive of $10.4 million and have been fully impaired in the table above and inclusive as of December 31, 2019.

Changes in the net carrying amount of intangible assets were as follows (dollars in thousands):

    

Distribution

    

Product

    

    

Developed

    

    

Rights

Rights

Tradenames

Technology

IPR&D

Total

December 31, 2018

$

81,204

$

217,473

$

11,156

$

96,857

$

83,700

$

490,390

Amortization

(5,062)

(40,921)

(706)

(5,968)

(52,657)

Impairments

(64,719)

(146,033)

(72,995)

(283,747)

Reclassifications(A)

19,700

(19,700)

December 31, 2019

$

11,423

$

50,219

$

10,450

$

17,894

$

64,000

$

153,986

Amortization

(1,201)

(9,802)

(530)

(1,392)

(12,925)

Impairments

(19,539)

(3,618)

(23,157)

September 30, 2020

$

10,222

$

20,878

$

9,920

$

12,884

$

64,000

$

117,904

(A) IPR&D in the amount of $19.7 million related to Osmolex ER was reclassified to Product Rights in the first quarter of 2019 when the product was launched. Osmolex ER was fully impaired during the second quarter of 2019.

As part of the Company’s goodwill and intangible asset impairment assessments, the Company estimates the fair values of the reporting unit and intangible assets using an income approach that utilizes a discounted cash flow model, or, where appropriate, a market approach. The discounted cash flow models are dependent upon the Company’s estimates of future cash flows and other factors. These estimates of future cash flows involve assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to estimated cash flows for the Company’s interim indefinite lived impairment test for the three months ended September 30, 2020 was 19.5%. The Company believes the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Impairment of intangible assets in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Amortization expense of $4.2 million and $13.5 million for the three months ended September 30, 2020 and 2019, respectively, and $12.9 million and $47.2 million for the nine months ended September 30, 2020 and 2019, respectively was recorded as cost of goods sold. The amortization expense of acquired intangible assets for each of the following periods are expected to be as follows (dollars in thousands):

    

Amortization

Years ending December 31

Expense

Remainder of 2020

$

3,120

2021

 

12,177

2022

 

7,609

2023

 

6,723

2024

4,774

Thereafter

 

19,501

Total

$

53,904

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 7. Accrued Liabilities

Accrued liabilities consist of the following (dollars in thousands):

    

September 30, 

    

December 31,

2020

2019

Accrued product returns

$

22,602

$

33,457

Accrued royalties

 

2,979

 

3,649

Accrued compensation

 

7,242

 

10,998

Accrued government and managed care rebates

 

3,875

 

4,867

Accrued research and development

975

3,028

Accrued expenses and other liabilities

 

7,332

 

8,477

Customer coupons

 

358

 

777

Deferred revenue

 

13

 

Total

$

45,376

$

65,253

In the ordinary course of business, the Company enters into contractual agreements with wholesalers pursuant to which the wholesalers distribute sales of Company products to customers and provide sales data to the Company. In return the wholesalers charge the Company a fee for services and other customary rebates and chargebacks based on distribution sales of Company products through the wholesalers and downstream customers.

Note 8. Financing Arrangements

The composition of the Company’s debt and financing obligations is as follows (dollars in thousands):

    

September 30, 

    

December 31,

2020

2019

CIT Bank, N.A. Term Loan, net of deferred financing costs of $2.1 million and  $3.4 million as of September 30, 2020 and December 31, 2019, respectively

$

219,290

$

267,950

Total debt

 

219,290

 

267,950

Less: current portion

 

 

Long-term debt

$

219,290

$

267,950

Term Loan

As of September 30, 2020, the interest rate was 4.75% for the Company’s Term A Loan and 5.25% for the Term B Loan. As of December 31, 2019, the interest rate was 5.79% for the Term A Loan and 6.29% for the Term B Loan. The Company was in compliance with all covenants of the Term Loan Agreement as of September 30, 2020.

During the quarter ended September 30, 2020, the Company prepaid $50.0 million in aggregate of the outstanding principal amount. The prepayments consisted of $42.3 million of Term A Loan outstanding principal and $7.7 million of Term B Loan outstanding principal. As required by the Third Amendment, the prepayments were made on a pro rata basis between the Term A Loan and the Term B Loan. The Company intends to continue to make interest payments accrued on the outstanding remaining balance through the date of maturity.

In accordance with ASC 470, when debt is prepaid within its contractual terms and the terms of the remaining debt are not modified, the prepayment should be treated as a partial extinguishment rather than a modification. This conclusion is reached without regard to consideration of the 10% cash flow test since no change to terms of the original debt

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

instrument was modified in connection with the prepayment. The Third Amendment allows for partial prepayments without creating changes to the terms of Term Loan A or Term Loan B.

As a result of the partial prepayments, the Company has elected, as an accounting policy in accordance with ASC 470-50-40-2, to write-off a proportionate amount of the unamortized fees at the time that the financing was partially settled in accordance with the terms of the Third Amendment. The unamortized debt issuance costs are allocated between the remaining original loan balance and the portion of the loan paid down on a pro-rata basis. Accordingly, at this time of repayment, the Company wrote off $0.5 million in debt issuance costs and recorded the expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.

Revolving Facility

As of September 30, 2020 there were no amounts drawn under the $50 million Revolving Facility with CIT Bank, N.A.

Note 9. Concentrations and Credit Risk

In the three and nine months ended September 30, 2020 and 2019, a significant portion of the Company’s gross product sales reported were through three customers, and a significant portion of the Company’s accounts receivable as of September 30, 2020 and December 31, 2019 were due from these customers as well. The following table sets forth the percentage of the Company’s gross sales and accounts receivable attributable to these customers for the periods indicated:

Gross Product
Sales 

Gross Product Sales 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

 

September 30, 

 

    

2020

    

2019

 

    

2020

    

2019

 

Amerisource Bergen

35

%  

18

%

32

%  

9

%

Cardinal Health

 

21

%  

36

%

 

21

%  

52

%

McKesson

 

38

%  

43

%

 

42

%  

35

%

Combined Total

 

94

%  

97

%

 

95

%  

96

%

Gross Account

 

Receivables

 

    

September 30, 

    

December 31,

 

2020

2019

 

Amerisource Bergen

 

25

%  

21

%

Cardinal Health

 

21

%  

22

%

McKesson

 

47

%  

51

%

Combined Total

 

93

%  

94

%

Purchasing

For the three and nine months ended September 30, 2020, one supplier accounted for approximately 98% and 81%, respectively, of the Company’s purchases of raw materials for products that are manufactured by the Company. For each of the three and nine months ended September 30, 2019, purchases of raw materials were not significant and one supplier accounted for approximately 81%, of the Company’s purchases of raw materials for products that are manufactured by the Company for both periods.

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OSMOTICA PHAMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The Company purchases various Active Pharmaceutical Ingredient, (“API”) of finished products at contractual minimum levels through agreements with third parties. Individually, none of these agreements are material to the Company, therefore, the Company does not believe that any of the purchase obligations represent levels above the normal course of business as of September 30, 2020.

Note 10. Incentive Plans

On May 18, 2020 and May 20, 2020, the Company granted performance stock units (“PSUs”) under its existing 2018 Incentive Plan (the “2018 Plan”) to certain key employees of the Company that gives holders the potential to receive a certain number of earned PSUs at the end of a pre-determined term. Unless earlier terminated, forfeited, relinquished or expired, the earned PSUs will vest in full on the vesting date, subject to the grantee remaining in continuous employment from the date of grant through the vesting date. The vesting date is the third anniversary from the grant date for the PSUs granted on May 18, 2020 and the fifth anniversary from the grant date for the PSUs granted on May 20, 2020. The number of PSUs that become earned PSUs as of the end of the performance period shall be equal to the number of PSUs multiplied by the applicable percentage based on Stock Price Hurdle attainment, as set forth in the PSU Award Agreement and 2018 Plan.

The Company recognized share-based compensation expense of $1.3 million and $1.3 million during the three months ended September 30, 2020 and 2019, respectively and $3.7 million and $3.8 million during the nine months ended September 30, 2020 and 2019, respectively, in each case inclusive of expense related to PSUs. As of September 30, 2020, the total remaining unrecognized compensation cost related to non-vested share-based compensation awards, including PSUs, amounted to $13.9 million. During the three and nine months ended on September 30, 2020, the Company granted 35,500 and 1,767,426, respectively, of restricted stock units, inclusive of PSUs. During the three and nine months ended September 30, 2020, shares vested were 0 and 300,788, respectively. As of September 30, 2020 there were 2,785,197 restricted units, including performance stock units outstanding and the weighted-average remaining requisite service period of the non-vested stock options was 1.12 years and for non-vested restricted stock units, including performance stock units, was 3.13 years.

Note 11. Commitments and Contingencies