EAGLE PHARMACEUTICALS, INC. - Quarter Report: 2017 September (Form 10-Q)

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o
(Do not check if a
smaller reporting company)

Smaller reporting company o

Emerging growth company o

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2017



o	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 001-36306

Eagle Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)



Delaware	2834	20-8179278
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

50 Tice Boulevard, Suite 315

Woodcliff Lake, NJ 07677

(201) 326-5300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

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 x No o

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 of Regulation 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 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 o No x

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. o

The number of shares outstanding of the registrant’s common stock as of November 1, 2017: 14,921,623 shares.

NOTE REGARDING COMPANY REFERENCES

References to the "Company," "Eagle Pharmaceuticals," "Eagle," "we," "us" or "our" mean Eagle Pharmaceuticals, Inc., a Delaware corporation and its subsidiary, Eagle Biologics, Inc., and references to "Eagle Biologics" mean Eagle Biologics, Inc.

NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

TABLE OF CONTENTS




		Page
Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016	2
	Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2017	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

Part II - Other Information

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	46
	Signatures	45

EAGLE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)




	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	97,545		$	52,820
Accounts receivable, net	71,601			42,194
Inventories	4,878			2,739
Prepaid expenses and other current assets	8,130			11,357
Total current assets	182,154			109,110
Property and equipment, net	4,365			3,316
Intangible assets, net	24,002			33,372
Goodwill	39,743			39,743
Deferred tax asset, net	16,502			28,643
Other assets	124			136
Total assets	$	266,890		$	214,320
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,902		$	14,716
Accrued expenses	20,438			25,237
Current portion of contingent consideration	55			1,012
Current portion of long-term debt	5,000			—
Total current liabilities	34,395			40,965
Contingent consideration, less current portion	17,482			22,129
Long-term debt, less current portion	43,936
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,500,000 shares authorized and no shares issued or outstanding as of September 30, 2017 and December 31, 2016	—			—
Common stock, $0.001 par value; 50,000,000 shares authorized; 16,071,435 and 15,890,862 issued as of September 30, 2017 and December 31, 2016, respectively	16			16
Additional paid in capital	229,655			213,872
Retained earnings (Accumulated deficit)	17,199			(25,659		)
Treasury stock, at cost, 1,150,437 and 566,838 shares as of September 30, 2017 and December 31, 2016, respectively	(75,793		)	(37,003		)
Total stockholders' equity	171,077			151,226
Total liabilities and stockholders' equity	$	266,890		$	214,320

See accompanying notes to condensed consolidated financial statements.

EAGLE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Revenue:
Product sales	$	6,905		$	7,837		$	34,895		$	31,566
Royalty revenue	43,616			26,246			117,527			67,025
License and other revenue	12,500			3,750			37,500			9,750
Total revenue	63,021			37,833			189,922			108,341
Operating expenses:
Cost of product sales	4,815			6,000			24,490			25,949
Cost of royalty revenue	6,850			4,425			18,990			10,538
Research and development	8,954			3,207			23,163			13,612
Selling, general and administrative	16,669			11,661			58,100			34,300
Gain on sale of asset	—			—			—			(1,750		)
Asset impairment charge	7,235			—			7,235			—
Change in fair value of contingent consideration	(6,452		)	232			(5,604		)	627
Total operating expenses	38,071			25,525			126,374			83,276
Income from operations	24,950			12,308			63,548			25,065
Interest income	35			26			52			76
Interest expense	(527		)	(3		)	(594		)	(6		)
Total other (expense) income	(492		)	23			(542		)	70
Income before income tax provision	24,458			12,331			63,006			25,135
Income tax provision	(9,027		)	(379		)	(20,148		)	(983		)
Net Income	$	15,431		$	11,952		$	42,858		$	24,152
Earnings per share attributable to common stockholders:
Basic	$	1.03		$	0.77		$	2.82		$	1.55
Diluted	$	0.98		$	0.73		$	2.68		$	1.46
Weighted average number of common shares outstanding:
Basic	15,047,917			15,570,740			15,174,426			15,614,328
Diluted	15,764,360			16,450,182			16,015,051			16,501,167

See accompanying notes to condensed consolidated financial statements.

EAGLE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

(unaudited)



	Common Stock			Additional Paid-In Capital		Treasury Stock			(Accumulated Deficit) Retained Earnings			Total Stockholders' Equity
	Number of Shares	Amount		Additional Paid-In Capital		Treasury Stock			(Accumulated Deficit) Retained Earnings			Total Stockholders' Equity
Balance at December 31, 2016	15,891	16		$	213,872	$	(37,003	)	$	(25,659	)	$	151,226
Stock-based compensation expense	—	—		11,618		—			—			11,618
Issuance of common stock upon exercise of stock option grants	180	—		4,165		—			—			4,165
Common stock repurchases	—	—		—		(38,790		)	—			(38,790		)
Net income	—	—		—					42,858			42,858
Balance at September 30, 2017	16,071	$	16	$	229,655	$	(75,793	)	$	17,199		$	171,077

See accompanying notes to condensed consolidated financial statements.

EAGLE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	42,858		$	24,152
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	12,141			—
Depreciation expense	657			461
Amortization of intangible assets	2,135			461
Stock-based compensation	11,618			7,539
Change in fair value of contingent consideration	(5,604		)	627
Amortization of debt issuance costs	128			—
Gain on sale of diclofenac-misoprostol	—			(1,750		)
Asset impairment charge	7,235			—
Changes in operating assets and liabilities:
Increase in accounts receivable	(29,407		)	(20,783		)
(Increase) decrease in inventories	(2,139		)	7,936
Decrease (increase) in prepaid expenses and other current assets	3,227			(3,713		)
Decrease in other assets	12			49
(Decrease) increase in accounts payable	(5,814		)	7,747
Decrease in deferred revenue	—			(6,000		)
Decrease in accrued expenses and other liabilities	(4,049		)	(3,074		)
Net cash provided by operating activities	32,998			13,652
Cash flows from investing activities:
Purchase of property and equipment	(1,706		)	(1,083		)
Purchase of short term investments	—			(62,000		)
Maturities of short term investments	—			62,000
Payment for business acquisition	—			(4,850		)
Payment for intangible asset	(750		)	(14,000		)
Proceeds from sale of diclofenac-misoprostol	—			1,750
Net cash used in investing activities	(2,456		)	(18,183		)
Cash flows from financing activities:
Proceeds from common stock option exercise	4,165			1,486
Payment of debt financing costs	(1,192		)	—
Payment of contingent consideration	—			(230		)
Proceeds from long-term debt	50,000			—
Repurchases of common stock	(38,790		)	(16,497		)
Net cash provided by (used in) financing activities	14,183			(15,241		)
Net increase (decrease) in cash	44,725			(19,772		)
Cash and cash equivalents at beginning of period	52,820			79,083
Cash and cash equivalents at end of period	$	97,545		$	59,311
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	8,845		$	2,800
Non-cash financing activities
Common stock repurchase not yet paid	—			1,500
Contingent consideration - business acquisition	—			6,370

See accompanying notes to condensed consolidated financial statements.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

1. Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The condensed consolidated balance sheet at December 31, 2016 was derived from audited financial statements, but certain information and footnote disclosures normally included in the Company's annual consolidated financial statements have been condensed or omitted. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the financial information for the interim periods reported have been made. Results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017 or any period thereafter. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 15, 2017. Unless otherwise indicated or required by context, reference throughout to the "Company," "Eagle Pharmaceuticals," "Eagle," "we," "us" or "our" mean Eagle Pharmaceuticals, Inc., a Delaware corporation and its subsidiary, Eagle Biologics, Inc., and references to "Eagle Biologics" mean Eagle Biologics, Inc.

2. Organization and Business Activities

Eagle Pharmaceuticals, Inc. (the Company, or Eagle, or we) is a specialty pharmaceutical company focused on developing and commercializing injectable products, primarily in the critical care and oncology areas, using the U.S. Food and Drug Administration's ("FDA's") 505(b)(2) New Drug Application ("NDA") regulatory pathway. The Company's business model is to develop proprietary innovations to FDA-approved injectable drugs, referred to as branded reference drugs, that offer favorable attributes to patients and healthcare providers. The Company has five products currently being sold in the United States under various license agreements in place with commercial partners, including a ready-to-use formulation of Argatroban, Ryanodex^®(dantrolene sodium) ("Ryanodex"), diclofenac-misoprostol, docetaxel injection, non-alcohol formulation ("Non-Alcohol Docetaxel Injection") and rapidly infused bendamustine RTD ("Bendeka"). The Company has a number of products currently under development and certain products may be subject to license agreements.

On February 13, 2015, the Company submitted a New Drug Application or NDA to the FDA for Bendeka, which was approved by the FDA on December 7, 2015. Also on February 13, 2015, the Company entered into an Exclusive License Agreement (the “Cephalon License”) with Cephalon, Inc. ("Cephalon"), a wholly-owned subsidiary of Teva Pharmaceutical Industries Ltd. ("Teva"), for U.S. and Canadian rights to Bendeka for treatment of patients with chronic lymphocytic leukemia (“CLL”) and patients with non-Hodgkin’s lymphoma (“NHL”). Subsequently, with the consent of the Company, Cephalon assigned to Teva Pharmaceuticals International GmbH (“TPIG”) all of Cephalon’s rights and obligations under the Cephalon License. Accordingly, all references to “Cephalon” or to the “Cephalon License” and the related supply agreements for Bendeka should be read and construed as references to TPIG and to the license agreement and supply agreements for Bendeka to which the Company and TPIG are now parties. Pursuant to the terms of the Cephalon License, Cephalon will be responsible for all U.S. commercial activities for the product including promotion and distribution, and the Company is responsible for obtaining and maintaining all regulatory approvals and conducting post-approval clinical studies. In connection with the Cephalon License, the Company has entered into a supply agreement with Cephalon, pursuant to which the Company is responsible for supplying product to Cephalon. During the quarter-ended September 30, 2016, the Company entered into an amendment to the Cephalon License and supply agreements for Bendeka. The amendment expands the geographical scope of the rights granted under the original agreement to include territories outside the US and Canada. In accordance with this agreement, the Company recorded $1.75 million in license and other revenue on the condensed consolidated statements of operations. The Company is also eligible to receive up to $750 thousand on each regulatory approval received in certain additional territories, not to exceed $2.25 million, and royalties on future sales.

Additionally, under the terms of the Cephalon License, the Company received an upfront cash payment of $30 million in February 2015, received a $15 million milestone payment related to the FDA approval of Bendeka in December 2015, received $40 million in November 2016 related to the receipt of a unique, product-specific billing code, J-code J9034 (the J-Code), for Bendeka and received $25 million in March 2017 for an additional sales-based milestone payment. In addition, the Company is entitled to receive royalty payments of 20% of net sales of the product, which increased to 25% on receipt of the J-Code.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

On October 13, 2015, the Company entered into an exclusive U.S. licensing agreement (the "Teikoku Agreement") with Teikoku Pharma USA, Inc. ("Teikoku") to market, sell and distribute Non-Alcohol Docetaxel Injection, an investigational product intended for the treatment of breast cancer, non-small cell lung cancer, prostate cancer, gastric adenocarcinoma, and head and neck cancer. The NDA for Non-Alcohol Docetaxel Injection for these indications was approved by the FDA on December 22, 2015. Under the terms of the agreement, the Company paid an upfront cash payment of $250 thousand upon execution of the agreement which was included in research and development in the Company's statement of operations in the fourth quarter of 2015. In January 2016, the Company made an additional payment of $4.85 million to Teikoku upon FDA approval and NDA transfer to Eagle. In addition, the Company is obligated to pay 25% royalties on future gross profits. The Company accounted for the transaction as a business combination in 2016. The results of operations related to Non-Alcohol Docetaxel Injection have been included in the statements of income from the date of acquisition. The Company did not incur any significant acquisition related costs in connection with the Non-Alcohol Docetaxel Injection acquisition (see Note 4 - Acquisitions).

On November 4, 2015, the Company entered into a Co-Promotion Agreement (the "Spectrum Agreement") with Spectrum Pharmaceuticals, Inc. ("Spectrum") under which Spectrum agreed to sell and market one of our products through June 2017. We had the option to extend the initial term of this agreement by six months to December 31, 2017 at our sole election. The Company elected not to exercise that option and the Spectrum agreement has expired.

On January 11, 2016, the Company entered into an agreement with Albany Molecular Research, Inc. ("AMRI") to jointly develop and manufacture several select and complex parenteral drug products for registration and subsequent commercialization in the United States. Under the terms of the agreement, AMRI is responsible for developing and initially providing cGMP manufacturing and analytical support for the registration of the new product candidates. The Company and AMRI share the costs of development, with 37.5% paid by the Company and 62.5% paid by AMRI. The Company is responsible for advancing the product candidates through clinical trials and regulatory submissions.

On March 18, 2016, the Company received a Complete Response Letter from the FDA for EP-6101 ready-to-use ("RTU") bivalirudin ("EP-6101") in which the FDA stated it cannot approve the application in its present form and requested additional information from the Company. The Company has elected not to pursue the application further or seek to exploit EP-6101 for various reasons including the costs associated with addressing the information request in the FDA Complete Response Letter and because additional generic bivalirudin products are able to enter the market.

On March 24, 2016 the FDA denied the Company's request for seven years of orphan drug exclusivity in the U.S., for Bendeka. In April 2016, we filed a lawsuit against the FDA arguing that Bendeka is entitled to orphan drug exclusivity as a matter of law (see Note 12 - Legal Proceedings). On July 2, 2014, the FDA granted us orphan drug designations for Bendeka for the treatment of CLL and indolent B-cell NHL. The designations were based on a plausible hypothesis that Bendeka is “clinically superior” to a drug previously approved for the same indications. Generally, an orphan-designated drug is eligible for seven years of marketing exclusivity for the orphan-designated indications upon approval of the drug for those indications. If granted, orphan drug exclusivity for Bendeka would run for seven years from December 7, 2015, the date Bendeka was approved.

On March 29, 2016, the Company entered into an asset purchase agreement (the "Diclofenac Asset Purchase Agreement") pursuant to which the Company sold certain intellectual property related to diclofenac-misoprostol in the United States. In consideration of the assets and rights sold under the Diclofenac Asset Purchase Agreement, the Company received a one-time payment at closing of $1.75 million which was recognized as a gain in the first quarter of 2016. In consideration of the rights granted under the agreement, the purchaser will pay the Company a 25% royalty on net profits of diclofenac-misoprostol in the territory for five years from the date of sale. The Company may continue to market diclofenac-misoprostol until such time that the purchaser is able to launch the product.

On August 3, 2016, the Company amended its agreement with Lyotropic Therapeutics, Inc. to reduce future royalties related to Ryanodex net sales from 15% to 3% (subject to further reduction upon the occurrence of certain triggering events) in exchange for $15.0 million, which we recorded as an intangible asset (see Note 7 - Intangible Assets, Net).

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

to an additional $100 million of its outstanding common stock (the “New Share Repurchase Program”). Under the Share Repurchase Program and the New Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Programs have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using the Company's cash resources. In any period, cash used in financing activities related to shares repurchased may differ from the comparable change in stockholders' equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash. The Company repurchased 583,599 shares of common stock for $38.8 million during the nine months ended September 30, 2017, and a total of 566,838 shares of common stock for $37.0 million in the year ended December 31, 2016.

On November 16, 2016 the Company entered into a stock purchase agreement to acquire Arsia Therapeutics, Inc. (“Arsia”), an early-stage biotechnology firm with proprietary viscosity-reducing technology and formulation know-how and subsequently renamed the subsidiary Eagle Biologics, Inc. ("Eagle Biologics"). Under the terms of the stock purchase agreement, at closing we paid approximately $27.2 million in cash and 40,200 shares of Eagle common stock worth $3.0 million at closing. We also agreed to pay up to $48 million in additional payments upon the completion of certain milestones, for aggregate potential payments of $78 million. As part of the agreement, Eagle Biologics founders and Massachusetts Institute of Technology professors Dr. Robert Langer and Dr. Alexander Klibanov, as well as other key members of the Eagle Biologics team, entered into agreements to work with Eagle to develop new formulations and solve delivery challenges with large molecule products (see Note 4 - Acquisitions).

On July 26, 2017, the Company received a Complete Response Letter from the FDA regarding its 505(b)(2) NDA for Ryanodex for the treatment of exertional heat stroke ("EHS"), in conjunction with external cooling methods. The FDA has requested that the Company conduct an additional clinical trial for Ryanodex for EHS. We disagree with the FDA’s conclusion and are currently evaluating our options.

On August 8, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”) and the lenders party thereto, which amended and restated the Company’s existing credit agreement, dated as of January 26, 2017. The Amended Credit Agreement provides for a three-year $50 million revolving credit facility and a three-year $100 million term loan facility (which are collectively referred to as the “Amended Credit Facility”). At closing, which occurred on August 8, 2017, $50 million of the term loan facility was drawn, and none of the revolving credit facility has been drawn. The Company may make one other draw on the term loan facility on or before February 4, 2018. The Amended Credit Facility includes a $5 million letter of credit subfacility. The Company anticipates that the draw at closing and future draws under the Amended Credit Facility, if any, will be used to finance the New Share Repurchase Program (as defined below) and for other corporate purposes. Loans under the Amended Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 2.25% to 3.00% per annum, based upon the total net leverage ratio (as defined in the Amended Credit Agreement), or (b) the prime lending rate, plus an applicable margin ranging from 1.25% to 2.00% per annum, based upon the total net leverage ratio. The Company is required to pay a commitment fee on the unused portion of the Amended Credit Facility at a rate ranging from 0.35% to 0.45% per annum based upon the total net leverage ratio. The Company is permitted to terminate or reduce the revolving commitments or term commitments of the lenders and to make voluntary prepayments at any time subject to break funding payments. The Company is required to make mandatory prepayments of outstanding indebtedness under the Amended Credit Agreement (a) upon receipt of proceeds from certain sales, transfers or other dispositions, casualty and other condemnation events and the incurrence of certain indebtedness other than indebtedness permitted, subject to customary reinvestment exceptions and (b) in the case that the aggregate amount of all outstanding loans and letters of credit issued under the Amended Credit Facility exceed the aggregate commitment of all lenders under the Amended Credit Facility.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

approval of a Product in Japan in 2020. SymBio will bear all costs of development of the Products in Japan except that, if Japanese regulatory authorities require a certain clinical study to be conducted as a condition for approving one of the Products in Japan, Eagle would share 50% of the out-of-pocket costs of that clinical study up to a specified dollar amount as a reduction to future royalty payments. Based on the Company's assessment of the probability of additional costs, we have not deferred revenue on the Symbio License Agreement. SymBio will also be responsible, at its sole cost, for all marketing, promotion, distribution and sales of the Products in Japan and is obligated to launch the Products and meet certain minimum detailing, promotion and marketing commitments in connection with commercialization of the Products in Japan.

SymBio currently markets in Japan TREAKISYM®, a lyophilized powder formulation of bendamustine hydrochloride indicated for CLL, relapsed or refractory low-grade NHL, mantle cell lymphoma (“MCL”), and as a first line treatment of low-grade NHL and MCL. Under the SymBio License Agreement, SymBio may continue to market TREAKISYM® in Japan and SymBio will be permitted to develop and market certain other bendamustine hydrochloride products in Japan for limited indications.

Pursuant to the terms of the SymBio License Agreement, the Company and SymBio will enter into a separate supply agreement, under which the Company will be responsible for manufacturing and supplying the Products to SymBio for development and commercialization in Japan. After a period of time following launch of a Product, SymBio will have the right to assume the responsibility for manufacturing of the Products in and for Japan. Under the Symbio License Agreement, the Company will retain the right to control the prosecution, maintenance and enforcement of the Company’s patents covering the Products, both inside and outside of Japan.

Under the Symbio License Agreement, the Company earned an upfront non-refundable cash payment of $12.5 million in the third quarter of 2017, and is eligible to receive a milestone payment upon approval of a Product in Japan and a milestone payment upon achievement of certain cumulative net sales of the Products in Japan. After regulatory approval of a Product in Japan, the Company will also receive tiered, low double-digit royalties on net sales of the Products in Japan for so long as there are patents covering the Products in Japan or regulatory exclusivity for the Products in Japan.

On October 27, 2017, the FDA granted tentative approval for the Company’s PEMFEXY™, a pemetrexed injection ready-to-dilute formulation ("Eagle's Pemfexy Product") for locally advanced or metastatic nonsquamous non-small cell lung cancer in combination with cisplatin; locally advanced or metastatic nonsquamous non-small cell lung cancer in patiensts whose disease has not progressed after four cycles of platinum-based first-line chemotherapy, as maintenance treatment; locally advanced or metastatic nonsquamous non-small cell lung cancer after prior chemotherapy as a single agent; and malignant pleural mesothelioma in patients whose disease is unresectable or who are otherwise not candidates for curative surgery in combination with cisplatin.

3. Summary of Significant Accounting Policies

Use of Estimates

These financial statements are presented in U.S. dollars and are prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements including disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and accompanying notes. The Company's critical accounting policies are those that are both most important to the Company's financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may materially vary from these estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash and cash equivalents are held in United States financial institutions. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature.

The Company, at times, maintains balances with financial institutions in excess of the FDIC limit.

Fair Value Measurements

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:


•	Level 1: Quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of interest-bearing cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to their life being short term in nature, and are classified as Level 1 for all periods presented.

The fair value of the contingent consideration/accrued royalty is classified as Level 3 for the period presented.

Intangible Assets

The Company capitalizes and includes in intangible assets the costs of acquired product licenses and developed technology purchased individually or identified in a business combination. Intangible assets are recorded at fair value at the time of their acquisition and stated net of accumulated amortization. The Company amortizes its definite-lived intangible assets using either the straight-line or accelerated method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. We will evaluate the potential impairment of intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Events giving rise to impairment are an inherent risk in our industry and many factors cannot be predicted. Factors that we consider in deciding when to perform an impairment review include significant changes in our forecasted projections for the asset or asset group for reasons including, but not limited to, significant under-performance of a product in relation to expectations, significant changes or planned changes in our use of the assets, significant negative industry or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group and its eventual disposition to the carrying value of the asset group. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the statements of income. We identified an impairment to our intangible asset for Non-Alcohol Docetaxel Injection in the three months ended September 30, 2017 (See Note 7 - Intangible Assets, Net).

With respect to determining an asset’s fair value and useful life, because this process involves management making certain estimates and these estimates form the basis of the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Goodwill

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired in the Eagle Biologics acquisition, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment in the fourth quarter. Goodwill is assessed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment model requires a two-step method for determining goodwill impairment. In the first step, we determine the fair value of our reporting units using an appropriate valuation methodology. If the net book value of a reporting unit exceeds its fair value, we would then perform the second step of the impairment test which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations. Any residual fair value is allocated to goodwill. An impairment charge is recognized only when the implied fair value of our reporting unit’s goodwill is less than its carrying amount. We did not identify any impairment to goodwill during the periods presented.

Acquisition-Related Contingent Consideration

Contingent consideration related to a business combination is recorded on the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the consideration expected to be transferred using probability-weighted assumptions and discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. The fair value of the acquisition-related contingent consideration is re-measured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in the consolidated statements of income.

Concentration of Major Customers and Vendors

The Company is dependent on commercial partners to market and sell Argatroban and Bendeka. The Company's customers for Argatroban and Bendeka are its commercial and licensing partners, therefore, the Company's future revenues are highly dependent on these collaboration and distribution arrangements. Under the SymBio License Agreement, the Company earned an upfront non-refundable cash payment of $12.5 million in the third quarter of 2017.

The total revenues and accounts receivables broken down by major customers as a percentage of the total are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues
Cephalon, Inc. (Teva) - See Revenue Recognition	67	%	77	%	78	%	72	%
SymBio Pharmaceuticals Limited	20	%	—	%	7	%	—	%
Other	13	%	23	%	15	%	28	%
	100	%	100	%	100	%	100	%



	September 30,		December 31,
	2017		2016
Accounts receivable
Cephalon, Inc. (Teva)	64	%	74	%
SymBio Pharmaceuticals Limited	18	%	—	%
Other	18	%	26	%
	100	%	100	%

Currently, for Argatroban and Bendeka, the Company uses one vendor as its sole source supplier. Because of the unique equipment and process for manufacturing, transferring manufacturing activities to an alternate supplier would be a time consuming and costly endeavor, and there are only a limited number of manufacturers that are capable of performing this function for the Company.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Inventory

Inventory is recorded at the lower of cost or market, with cost determined on a first-in first-out basis. The Company periodically reviews the composition of inventory in order to identify obsolete, slow-moving or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the decline in value is first recognized. In most instances, inventory is shipped from the Company's vendor directly to the Company's customers.

Property and Equipment

Property and equipment are stated at cost. Depreciation is recorded over the estimated useful lives of the assets utilizing the straight-line method. Leasehold improvements are being amortized over the shorter of their useful lives or the lease term.

Research and Development Expense

Costs incurred for research and product development, including costs incurred for technology in the development stage, are expensed as incurred. Clinical study costs are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. Advance payments for goods or services that will be used for future research and development activities are capitalized as deferred cost and expensed as the related goods are delivered or services performed. Recoveries of previously recognized research and development expenses from third parties are recorded as a reduction to research and development expense in the period it becomes realizable.

Advertising and Marketing

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $2,568 and $3,104 for the three months ended September 30, 2017 and 2016, respectively, and $17,296 and $8,825 for the nine months ended September 30, 2017 and 2016, respectively.

Income Taxes

We account for income taxes using the liability method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 740 - Income Taxes (“ASC 740”). Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate changes. A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. Since our inception, we have incurred substantial cumulative losses and through the third quarter of 2016 we recorded a full valuation allowance against our net deferred tax assets which was largely made up of our net operating loss carryforward. In the fourth quarter of 2016, the Company reversed the reserve on its net deferred tax asset (see Note 11 - Income Taxes). ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction. We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Revenue Recognition

Product revenue - The Company recognizes net revenue on sales to its commercial partners and to end users. In each instance, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered and collectability is reasonably assured.

Revenue on sales to commercial partners relates to Argatroban and Bendeka. The Company’s commercial partners can return product within specified timeframes if the product does not meet certain inspection tests. Sales to our commercial partners are presented gross primarily because the Company is the primary obligor in the arrangement, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Revenue on sales to end users for Non-Alcohol Docetaxel Injection, Ryanodex and diclofenac-misoprostol are recorded net of chargebacks, rebates, returns, prompt pay discounts, wholesaler fees and other deductions. Our products are contracted with a limited number of oncology distributors and hospital buying groups with narrow differences in ultimate realized contract prices used to estimate our chargeback and rebate reserves. The Company has a product returns policy on some of its products that allows the customer to return pharmaceutical products within a specified period of time both prior to and subsequent to the product’s expiration date. The Company's estimate of the provision for returns is analyzed quarterly and is based upon many factors, including historical experience of actual returns and analysis of the level of inventory in the distribution channel, if any. The Company has terms on sales of Ryanodex by which the Company does not accept returns. The Company believes that the reserves it has established are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in the estimated amount for reserves to vary.

Royalty Revenue — The Company recognizes revenue from license arrangements with its commercial partners' net sales of products. Royalties are recognized as earned in accordance with contract terms when they can be reasonably estimated and collectability is reasonably assured. The Company's commercial partners are obligated to report their net product sales and the resulting royalty due to the Company within 25 days for Bendeka and 60 days for Argatroban from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, the Company accrues royalty revenue each quarter and subsequently determines a true-up when it receives royalty reports from its commercial partners. Historically, these true-up adjustments have been immaterial.

License and other revenue — The Company analyzes each element of its licensing agreements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments over the period of significant involvement under the related agreements unless the fee is in exchange for products delivered or services rendered that represent the culmination of a separate earnings process and no further performance obligation exists under the contract.

When a sale combines multiple elements upon performance of multiple services, the Company allocates revenue for transactions that include multiple elements to each unit of accounting which is a deliverable or combination of deliverables under the arrangement that has stand-alone value to the counter-party based on its relative selling price, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The Company follows the selling price hierarchy as outlined in the guidance Revenue Recognition ASC Topic 605 - Multiple-Deliverable Revenue Arrangements. The guidance provides a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence (“VSOE”), (ii) third-party evidence (“TPE”) if available and when VSOE is not available, and (iii) best estimate of the selling price (“BESP”) if neither VSOE nor TPE is available. The Company uses BESP to determine the stand-alone selling price for such deliverables. The Company has an established process for developing BESP, which incorporates pricing practices, historical selling prices, the effect of market conditions as well as entity-specific factors. Estimated selling price is monitored and evaluated on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

The Company recognizes milestone payments as revenue upon the achievement of specified milestones only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone, (3) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with achievement of the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we defer the milestone payment and recognize it as revenue over the estimated period of performance under the contract.

As described above, under the terms of the Cephalon License, the Company received an upfront cash payment of $30 million, received a milestone payment of $15 million for regulatory approval, received a $40 million milestone upon receipt of the J-Code and received a $25 million in an additional sales based milestone payment for reaching $500 million in net product sales of Bendeka. In 2015, the $30 million upfront payment was allocated between the license issued to Cephalon and obtaining and maintaining regulatory approvals and conducting post-approval clinical studies using the Company’s best estimate of selling price for each deliverable. The full $30 million was recognized as income in the first quarter of 2015, as the Company substantially completed its requirements for obtaining regulatory approval, which consisted of filing an NDA on February 13, 2015, and the remaining obligations were estimated to require minimal effort. On December 7, 2015, the FDA approved Bendeka (50 mL bendamustine hydrochloride) marking the achievement of a milestone which entitled the Company to a $15 million payment which was received in January 2016. The Company received a $40 million milestone payment in November 2016 upon receipt of the

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

unique J-Code. Additionally, this event triggered an increase in the royalty rate from 20% to 25% of Bendeka net sales. In March 2017, the Company received a $25 million sales-based milestone payment for reaching $500 million in net product sales.

As discussed above, under the Symbio License Agreement, the Company earned an upfront non-refundable cash payment of $12.5 million during three months ended September 30, 2017.

Collaborative licensing and development revenue — The Company recognizes revenue from reimbursements received in connection with feasibility studies and development work for third parties when its contractual services are performed, provided collectability is reasonably assured. Its principal costs under these agreements include its personnel conducting research and development, its allocated overhead, as well as the research and development performed by outside contractors or consultants.

Upon termination of a collaboration agreement, any remaining non-refundable license fees received by the Company, which had been deferred, are generally recognized in full. All such recognized revenues are included in collaborative licensing and development revenue in its statements of income. The Company recognizes revenue from milestone payments received under collaboration agreements when earned, provided that the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, the Company has no further performance obligations relating to the event, and collectability is reasonably assured. If these criteria are not met, the Company recognizes milestone payments ratably over the remaining period of its performance obligations under the collaboration agreement.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value provisions of ASC 718, Compensation - Stock Compensation that requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock-based payments including stock options and restricted stock. This topic requires companies to estimate the fair value of the stock-based awards on the date of grant for options issued to employees and directors and record expense over the employees service periods, which are generally the vesting period of the equity awards. Awards for consultants are accounted for under ASC 505-50, Equity Based Payments to Non-Employees. Any compensation expense related to consultants is marked-to-market over the applicable vesting period as they vest. There are customary limitations on the sale or transfer of the stock.

The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all stock-based payments made to employees and directors based on estimated grant date fair values. The straight-line method is used to allocate compensation cost to reporting periods over each optionee's requisite service period, which is generally the vesting period. The fair value of our stock-based awards to employees and directors is estimated using the Black-Scholes option valuation model, or Black-Scholes model. The Black-Scholes model requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs. The risk-free interest rate was determined with the implied yield currently available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options.

Earnings Per Share

Basic earnings per common share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed in a manner similar to the basic earnings per share, except that the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of warrants, options, convertible debt and other such convertible instruments. Diluted earnings per share contemplate a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.

The anti-dilutive common shares equivalents outstanding at the three and nine months ended September 30, 2017 and 2016 were as follows:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Options	1,671,570	1,387,997	1,580,277	1,375,351
Total	1,671,570	1,387,997	1,580,277	1,375,351

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

The following table sets forth the computation for basic and diluted net income per share for the three and nine months ended September 30, 2017 and 2016:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Numerator
Numerator for basic and diluted earnings per share-net income	$	15,431	$	11,952	$	42,858	$	24,152
Denominator
Basic weighted average common shares outstanding	15,047,917		15,570,740		15,174,426		15,614,328
Dilutive effect of stock options	716,443		879,442		840,625		886,839
Diluted weighted average common shares outstanding	15,764,360		16,450,182		16,015,051		16,501,167
Basic net income per share
Basic net income per share	$	1.03	$	0.77	$	2.82	$	1.55
Diluted net income per share
Diluted net income per share	$	0.98	$	0.73	$	2.68	$	1.46

Recent Accounting Pronouncements

Recent Accounting Pronouncements - Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. In July 2015, the FASB deferred the effective date of the new revenue standard for interim and annual periods beginning after December 15, 2017 (previously December 15, 2016). The Company expects to adopt this guidance on January 1, 2018. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company expects to adopt the new guidance following the modified retrospective approach.

The new guidance requires the application of a five-step model to determine the amount and timing of revenue to be recognized. The underlying principle is that revenue is to be recognized for the transfer of goods or services to customers that reflects the amount of consideration that the Company expects to be entitled to in exchange for those goods or services.

The Company is continuing to assess the impact of the new guidance on its accounting policies and procedures and is evaluating the new requirements as applied to existing revenue contracts. Although the Company is continuing to assess the impact of the new guidance, the Company believes the most significant impact will relate to the recognition of license milestone revenues. The Company continues to work on its plan for implementation of the new guidance including reviewing accounting policies and evaluating internal controls and will implement any changes as required to facilitate adoption of the new guidance.

In January 2016, the FASB issued ASU 2016-01, which revises the guidance in ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities, and provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies. We are currently assessing the potential impact of this ASU on our financial position and results of operations.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this new standard will increase assets and liabilities on our balance sheet when adopted. We are still fully assessing the overall impact of this ASU on our financial position and results of operations.

In January 2017, the FASB issued guidance to simplify the measurement of goodwill. The guidance eliminates Step 2 from the goodwill impairment test. Instead, under the amendments in this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for interim or annual goodwill impairment tests performed for testing dates after January 1, 2017. The guidance must be adopted on a prospective basis. We do not expect this guidance to have an impact on our consolidated financial statements.

In January 2017, the FASB issued guidance clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities is not a business, provides a framework to assist entities in evaluating whether both an input and substantive process are present, and narrows the definition of the term output. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The guidance must be adopted on a prospective basis. We will consider the guidance for future transactions.

Recent Adopted Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. In 2016, we early adopted this ASU. With the adoption of this ASU, the Company continues to estimate forfeitures in the calculation of stock-based compensation.

Note 4. Acquisitions

Acquisition of Non-Alcohol Docetaxel Injection

On October 13, 2015, the Company entered into the Teikoku Agreement with Teikoku to market, sell and distribute Non-Alcohol Docetaxel Injection, an investigational product intended for the treatment of breast cancer, non-small cell lung cancer, prostate cancer, gastric adenocarcinoma, and head and neck cancer. The NDA for Non-Alcohol Docetaxel Injection for these indications was approved by the FDA on December 22, 2015. Under the terms of the agreement, the Company paid $4,850 upon FDA approval and NDA transfer to the Company, which occurred on January 12, 2016. The Company will also pay 25% royalties on future gross profits to Teikoku. The Company accounted for the transaction as a purchase of a business in 2016, in accordance with FASB ASC 805 Business Combinations.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

The Company has measured the fair value of the future royalty payment using its own assumptions of future profitability for Non-Alcohol Docetaxel Injection. Acquisition contingent consideration is measured at fair value on a recurring basis using unobservable inputs, which accordingly represents a Level 3 measurement within the fair value hierarchy. Any change in fair value of the contingent consideration subsequent to the acquisition date is recognized in operating income within the condensed statement of operations.

During the three months ended September 30, 2017, the Company recorded a change in the fair value of contingent consideration of $6.9 million. This was primarily driven by adjustments to the fair values of the liabilities associated with Non-Alcohol Docetaxel Injection, which was remeasured due to the loss of a customer and other market conditions identified during the 3rd quarter of 2017 for the product and partially offset by accretion for the time value of money.

The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability, which was recorded in the Company's condensed consolidated statements of income:



Opening Balance January 12, 2016		Changes in fair value		Payment of contingent consideration			Closing Balance December 31, 2016		Changes in fair value			Payment of contingent consideration		Closing Balance September 30, 2017
$	6,370	$	856	$	(286	)	$	6,940	$	(6,203	)	$	—	$	737

Total consideration of $11,220, which is comprised of the $4,850 cash paid on FDA approval and NDA transfer to the Company and the fair value of contingent consideration has been attributed to the intangible asset for Non-Alcohol Docetaxel Injection product rights.

The results of operations related to Non-Alcohol Docetaxel Injection have been included in the statements of income from the date of acquisition. Pro forma results of operations have not been presented because the effect of Non-Alcohol Docetaxel Injection was not material. The Company recorded product sales of Non-Alcohol Docetaxel Injection of $1,106 and a net loss of $549 in the three months ended September 30, 2017. The Company recorded product sales of Non-Alcohol Docetaxel Injection of $3,764 and a net loss of $5,678 in the nine months ended September 30, 2017. The Company did not incur any significant acquisition related costs in connection with the Non-Alcohol Docetaxel Injection acquisition.

Eagle Biologics Acquisition

On November 16, 2016, the Company entered into an agreement to acquire Arsia Therapeutics (“Arsia”), an early-stage biotechnology firm with proprietary viscosity-reducing technology and formulation know-how and subsequently renamed the subsidiary Eagle Biologics, Inc. ("Eagle Biologics"). Under the terms of the stock purchase agreement, we paid approximately $27.2 million in cash and 40,200 shares of Eagle common stock worth $3.0 million at closing. We also agreed to pay up to $48 million in additional payments upon the completion of certain milestones, for aggregate potential payments of $78 million. As part of the agreement, Eagle Biologics founders and Massachusetts Institute of Technology professors, Dr. Robert Langer and Dr. Alexander Klibanov, as well as other key members of the Eagle Biologics team, entered into agreements to work with Eagle to develop new formulations and solve delivery challenges in the large molecules space.

The acquisition was accounted for as a business combination in accordance with ASC 805 which requires the assets acquired and liabilities assumed from Eagle Biologics to be recorded on the acquisition date at their respective fair values. Eagle Biologics’ results of operations are included in the financial statements from the date of acquisition.

Eagle Biologics’ platform technology enables subcutaneous administration of high-dose biologics through improved formulation. Eagle Biologics has developed early-stage partnerships with major pharmaceutical companies to apply its technology to their biosimilar molecules, create subcutaneous versions of currently-marketed IV products and produce high-concentration formulations of clinical candidates. In addition to acquiring the technology platform, the Company plans to establish a Biologics Innovation Center in Kendall Square in Cambridge, Massachusetts.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

The following table summarizes the consideration transferred to acquire Eagle Biologics at the date of acquisition:



The aggregate consideration consisted of:	Preliminary fair value
Cash consideration paid	$	27,209
Common stock issued (i)	3,046
Fair value of contingent consideration payable to seller(long term) (ii)	16,100
Total consideration	$	46,355

(i)

Under the stock purchase agreement, the number of common shares to be issued to the seller is equal to $2.7 million divided by the average of the closing day price per share for the thirty (30) trading days prior to the Closing Date. The average price of the common stock of 30 days prior to closing was $68.18. Accordingly, the number of common stock to be issued to the seller was determined at 40,200 shares ($2.7 million divided by $68.18 per share). The fair value of the common stock issued was determined based on the closing price of Eagle’s common stock on November 16, 2016.

(ii)

Under the stock purchase agreement, the contingent consideration includes four separate milestone payments which could aggregate to a total of $48 million payable to the seller upon achievement of certain clinical, regulatory and development milestones. These milestone payments are also subject to acceleration under certain circumstances described in the Purchase Agreement. In accordance with the provisions of ASC 805-30-25-5, each unit of contingent consideration is recognized at the acquisition date fair value. The acquisition date fair value of the contingent consideration is $16.1 million and has been classified as other liabilities within non-current liabilities. Such fair values are determined based on a probabilistic model with weights assigned on the likelihood of the Company achieving the clinical, regulatory and development milestones as well as acceleration event in the future. Each unit of contingent consideration is classified as a liability in the balance sheet and would be subsequently measured at fair value on each reporting date. Any future change in fair value would be recognized in the statement of operations.

The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability since acquisition through September 30, 2017, which was recorded in selling, general and administrative expense in the condensed consolidated statements of income:



Opening Balance November 16, 2016		Changes in fair value		Payment of contingent consideration		Closing Balance December 31, 2016		Changes in fair value		Payment of contingent consideration		Closing Balance September 30, 2017
$	16,100	$	101	$	—	$	16,201	$	600	$	—	$	16,801

5. Inventories

Inventories consist of the following:



	September 30,		December 31,
	2017		2016
Raw material	$	1,833	$	1,131
Work in process	428		900
Finished products	2,617		708
	$	4,878	$	2,739

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

6. Balance Sheet Accounts

Prepaid and Other Current Assets

Prepaid and other current assets consist of the following:



	September 30,		December 31,
	2017		2016
Advances to commercial manufacturers	$	4,631	$	7,600
Prepaid FDA user fee	—		1,592
Prepaid insurance	307		135
Prepaid income taxes	2,176		1,654
Prepaid research and development	166		21
All other	850		355
Total Prepaid expenses and other current assets	$	8,130	$	11,357

Accrued Expenses

Accrued expenses consist of the following:



	September 30,		December 31,
	2017		2016
Royalties payable to commercial partners	$	6,897	$	9,068
Accrued research & development	3,500		3,528
Accrued professional fees	3,185		2,094
Accrued salary and other compensation	3,098		6,003
Accrued product costs	3,154		2,856
Accrued other	604		1,688
Total Accrued expenses	$	20,438	$	25,237

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

7. Intangible Assets, Net

The gross carrying amounts and net book value of our intangible assets are as follows:



		September 30, 2017
	Useful Life (In Years)	Gross Carrying Amount		Accumulated Amortization			Impairment Charge			Net Book Value
Docetaxel product rights	10	$	11,220	$	(1,039	)	$	(7,235	)	$	2,946
Ryanodex intangible	20	15,000		(627		)	—			14,373
Developed technology	5	8,100		(1,417		)	—			6,683
Total		$	34,320	$	(3,083	)	$	(7,235	)	$	24,002



		December 31, 2016
	Useful Life (In Years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Docetaxel product rights	18	$	11,220	$	(571	)	$	10,649
Ryanodex intangible	20	15,000		(174		)	14,826
Developed technology	5	8,100		(203		)	7,897
Total		$	34,320	$	(948	)	$	33,372

Amortization expense was $711 and $201 for the three months ended September 30, 2017 and 2016, respectively, and $2,135 and $461 for the nine months ended September 30, 2017 and 2016, respectively.

Intangible Asset Impairment

During the three months ended September 30, 2017, the Company experienced a decline in customer contracts and saw a drop in market pricing for Non-Alcohol Docetaxel Injection. Accordingly, the Company estimated the fair value of our Non-Alcohol Docetaxel Injection product and determined the carrying amount of the intangible asset was no longer fully recoverable, resulting in a pre-tax, non-cash asset impairment charge of $7.2 million during the three months ended September 30, 2017.

Estimated Amortization Expense for Intangible Assets

Based on definite-lived intangible assets recorded as of September 30, 2017, and assuming that the underlying assets will not be impaired and that the Company will not change the expected lives of the assets, future amortization expenses are estimated as follows:



	Estimated Amortization Expense
	Estimated Amortization Expense
Year Ending December 31,
2017 (remainder)	$	628
2018	2,685
2019	2,807
2020	2,953
2021	2,910
All other	12,019
Total estimated amortization expense	$	24,002

8. Common Stock and Stock-Based Compensation

On August 9, 2016, the Company announced a share repurchase program approved by the Company’s board of directors authorizing the repurchase of up to $75.0 million of the Company’s common stock (the “Share Repurchase Program”). On August 9, 2017, the Company announced a new share repurchase program approved by the Board, under which the Company may repurchase up to an additional $100 million of its outstanding common stock (the “New Share Repurchase Program”). Under the Share Repurchase Program and the New Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Programs have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using the Company's cash resources. In any period, cash used in financing activities related to shares repurchased may differ from the comparable change in stockholders' equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash.

We repurchased the following shares of common stock with cash resources during the nine months ended September 30, 2017:



Shares of common stock repurchased	583,599
Value of common stock repurchased	$	38,790

In December 2007, the Company's board of directors approved the 2007 Incentive Compensation Plan (the "2007 Plan") enabling the Company to grant multiple stock-based awards to employees, directors and consultants, the most common being stock options and restricted stock awards. In November 2013, the Company's board of directors approved the 2014 Equity Incentive Plan (the "2014 Plan") which became effective on February 11, 2014. The 2007 Plan was terminated upon the effectiveness of the 2014 Plan and all shares available for issuance under the 2007 Plan were made available under the 2014 Plan. The 2014 Plan provides for the awards of incentive stock options, non-qualified stock options, restricted stock, restricted stock units and other stock-based awards. Awards generally vest equally over a period of four years from grant date. Vesting may be accelerated under a change in control of the Company or in the event of death or disability to the recipient. In the event of termination, any unvested shares or options are forfeited. At the Company's annual meeting of stockholders held on August 4, 2015, the stockholders approved an amendment to the 2014 Plan to, among other things, increase the number of shares of common stock authorized for issuance

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

thereunder by 500,000 shares. After accounting for such increase, and as of such amendment, the Company has reserved and made available 2,046,128 shares of common stock for issuance under the 2014 Plan.

The fair value of stock options granted to employees, directors, and consultants was estimated using the following assumptions:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Risk-free interest rate	1.70% - 2.19%	0.94% - 1.41%	1.70% - 2.42%	0.94% - 1.90%
Volatility	34.48%	31.68%	36.91%	31.34%
Expected term (in years)	5.50 - 7.00 years	5.00 - 7.00 years	5.50 - 7.00 years	5.00 - 7.00 years
Expected dividend yield	0.0%	0.0%	0.0%	0.0%

The Company recognized share-based compensation in its statements of income for the three and nine months ended September 30, 2017 and 2016 as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Selling, general and administrative	$	2,795	$	1,584	$	8,662	$	5,501
Research and development	933		666		2,956		2,038
Total	$	3,728	$	2,250	$	11,618	$	7,539

9. Commitments

At September 30, 2017, the Company has purchase obligations in the amount of $17,895 which represent the contractual commitments under Contract Manufacturing and Supply Agreements with suppliers. The obligation under the supply agreement is primarily for finished product, inventory, and research and development.

The Company leases its office and lab space under lease agreements that expire on June 30, 2020 and December 31, 2026, respectively. Rental expense was $184 and $145 for the three months ended September 30, 2017 and 2016, and $503 and $463 for the nine months ended September 30, 2017 and 2016, respectively. The future lease payments under the operating leases are $2,661 as of September 30, 2017, payable monthly through June 30, 2020.



	Total		2017	2018	2019	2020	2021	Beyond
Operating lease obligations	$	2,661	167	670	674	395	117	638
Purchase obligations	$	17,895	17,895	—	—	—	—	—

10. Asset Sales

During fiscal year 2010 and 2011, the Company divested a non-core product and received proceeds of $6,500, comprised of $5,500 as a signing milestone which was previously recorded in deferred revenues and $500 for the initiation of Tech Transfer of which $250 previously remained in deferred revenues and a second payment of $500 for the completion of the Tech Transfer of which $250 previously remained in deferred revenues. Under the terms of this agreement, the licensor must obtain all of the following milestones with regard to the filing of the product in order for the Company to earn the revenues. These milestones are a) the receipt of an approval letter from the FDA, b) acknowledgment from the FDA that no further clinical studies will be needed and c) an approval letter from the FDA.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

The Company, through various requests for information, was informed by the licensor in 2016 that it had voluntarily withdrawn the filing of the product application from the FDA in a prior year. Under the terms of the agreement, the milestones required to earn the $6,000 previously included in deferred revenue all related to the filing. The voluntary withdrawal of the filing by the licensor relieved the Company of further obligation with regard to performance under the milestones. Accordingly, during the three months ended March 31, 2016, the Company recognized the $6,000 as license and other income.

On March 29, 2016, the Company entered into the Diclofenac Asset Purchase Agreement pursuant to which the Company sold certain intellectual property related to diclofenac-misoprostol in the United States. In consideration of the assets and rights sold under the Diclofenac Asset Purchase Agreement, the Company received a one-time payment at closing of $1.75 million, which was recognized as a gain in the first quarter of 2016. In consideration of the rights granted under the Diclofenac Asset Purchase Agreement, the purchaser will pay the Company a 25% royalty on net profits of diclofenac-misoprostol in the territory for five years from the date of sale. The Company may continue to market diclofenac-misoprostol until such time that the purchaser is able to launch.

11. Income Taxes



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Provision for income taxes	$	9,027		$	379		$	20,148		$	983
Effective tax rate	37		%	3		%	32		%	4		%

The effective tax rate for the three months ended September 30, 2017 reflects the tax benefit of stock option exercises in the period and credits for research and development activity. During the three months ended September 30, 2016, we maintained a full valuation allowance on tax assets. The amount of the provision for that period reflects the Company’s estimated federal AMT and state tax liability.

The effective tax rate for the nine months ended September 30, 2017 reflects the tax benefit of stock option exercises in the period and credits for research and development activity. During the nine months ended September 30, 2016, we maintained a full valuation allowance on tax assets. The amount of the provision for that period reflects the Company’s estimated federal AMT and state tax liability.

Deferred income tax assets at September 30, 2017 consist of temporary differences primarily related to net operating loss carryforwards, stock-based compensation, and research and development tax credit carryforwards, partially offset by temporary differences related to intangible assets.

The Company files income tax returns in the U.S. federal jurisdiction and several states. Given that the company has incurred tax losses since its inception, all of the Company’s tax years are effectively open to examination. The Company has no amount recorded for any unrecognized tax benefits as of September 30, 2017. The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions. We reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of income tax provision or benefit.

12. Legal Proceedings

Commercial Litigation

In Re: Taxotere (Docetaxel)

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

On February 1, 2017, the Company was named as a defendant, among various other manufacturers, in several product liability suits that are consolidated in the U.S. District Court for the Eastern District of Louisiana as part of MDL 2740 (Civil Action No 2:16 md-2740). The claims are for personal injuries allegedly arising out of the use of docetaxel.

In March 2017, the Company reached agreements in principle with the Plaintiffs’ Steering Committee in this matter to voluntarily dismiss the Company from all of the law suits in which it was named and from the master complaint. The Company is in the process of working with the other parties in this matter to have it removed from the Multidistrict litigation entirely. As part of the agreement, in the event a case is brought in the future with facts that justify the Company’s inclusion, the plaintiffs reserved the right to include the Company in such matter. The plaintiffs have filed several additional lawsuits since the parties’ agreement in principle to dismiss, and the Company is in the process of working with plaintiffs to explore the possibility of dismissing those lawsuits. The Company believes that it has substantial meritorious defenses to these cases and maintains product liability insurance against such cases. However, litigation is inherently uncertain and the Company cannot predict the outcome of this litigation. These actions, if successful, or if our indemnification arrangements or insurance do not provide sufficient coverage against such claims, could adversely affect the Company and could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

Medicines Company v. Eagle

On February 2, 2016, The Medicines Company (“MDCO”) filed a complaint in the U.S. District Court for the District of New Jersey against the Company, SciDose LLC and TherDose Pharma Pvt. Ltd. (collectively the “Defendants”) relating to the Defendants’ work on a novel ready-to-use bivalirudin injection product (“EP-6101”). MDCO amended that complaint in April of 2016. The suit cites the May 7, 2008 License and Development Agreement (the “LDA”) between the Defendants and MDCO, which was terminated by the Company on September 17, 2013. In the lawsuit, MDCO alleges that the Company violated the terms of the LDA by, inter alia, developing EP-6101, and that EP-6101 infringes two patents that are jointly-owned by the Company and MDCO and violates an exclusive license that MDCO claims survived the termination of the LDA. The Company filed a motion for summary judgment in October 2016, which was denied on March 15, 2017. The Company continues to dispute the allegations made by MDCO and believes it has meritorious defenses to all of MDCO’s claims. Fact discovery is ongoing and closes in December 2017, with expert discovery closing in April 2018. Based on recent events, the Company has filed a motion seeking to have the case dismissed from federal court based on the Court lacking subject matter jurisdiction. That motion is pending. Moreover, the Company filed a motion to stay any further discovery pending a determination of its motion to dismiss.

Bauer v. Eagle

On May 31, 2016, a federal securities class-action lawsuit (captioned Bauer v. Eagle Pharmaceuticals, Inc., et al., Case No. 16-cv-03091-JLL-JAD) was filed in the United States District Court for the District of New Jersey against the Company and the Company’s Chief Executive Officer. On August 1, 2016, plaintiffs Blake Bauer, Brent Kawamura and Guarang Patel (the "EGRX Investors Group"), filed a motion requesting the Court to appoint the EGRX Investors Group as lead plaintiff and Kirby McInerney LLP as lead counsel. The motion was granted on September 9, 2016. On October 31, 2016, the EGRX Investors Group filed an amended class action complaint (the “Amended Complaint”) against the defendants, seeking compensatory damages and an award of costs and expenses, including attorneys’ and experts’ fees. The Amended Complaint alleged that defendants violated sections 10(b) and 20(a) of the Securities Exchange Act, as amended, by making false and/or misleading statements about, among other things: (a) EP-6101, (b) the Company’s expectations regarding the NDA submitted for EP-6101, and (c) the Company’s business prospects. On December 16, 2016, defendants’ filed a motion to dismiss the Amended Complaint. Plaintiffs opposed that motion on January 30, 2017. Defendants’ filed their reply on March 1, 2017. On May 19, 2017, the Court granted defendant’s motion to dismiss and dismissed the Amended Complaint without prejudice. On June 1, 2017, the Court entered an order granting plaintiffs until July 3, 2017 to file an amended complaint. Plaintiffs did not file an amended complaint on or before July 3, 2017 and, therefore, on August 2, 2017, the Court entered an order dismissing the case with prejudice and directing the clerk to close the case. On August 31, 2017, plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit, indicating their intent to appeal from the Court’s May 19, 2017 and August 2, 2017 orders. On October 4, 2017, plaintiffs-appellants filed a motion to withdraw their appeal and, on October 5, 2017, the Court of Appeals issued an order dismissing the appeal without costs to either party.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Eagle v. Burwell

On April 27, 2016, the Company filed an action in the U.S. District Court for the District of Columbia against the FDA and other federal defendants seeking an order requiring the FDA to grant us orphan drug exclusivity for Bendeka for the treatment of CLL and indolent B-cell NHL. The Company believes Bendeka is entitled to orphan drug exclusivity as a matter of law, and that the FDA’s decision violates federal law and is inconsistent with the holding of the U.S. District Court for the District of Columbia in Depomed Inc. v. U.S. Department of Health and Human Services. The parties have filed all substantive motions and pleadings and anticipate either a schedule for oral argument or a disposition from the court in 2017.

Eagle v. Eli Lilly

On August 24, 2017, the Company filed an antitrust complaint in the United States District Court for the District of New Jersey against Eli Lilly and Company (“Lilly”), Case No. 2:17-CV-06415. The complaint alleges that Lilly engaged in anticompetitive conduct which restrained competition by delaying and blocking the Company’s launch of a competing pemetrexed injection product (to compete with Lilly’s Alimta). Lilly has accepted service and answered the complaint on October 27, 2017. Lily also filed a motion to transfer this case to Delaware on October 27, 2017. Eagle filed a motion to oppose such transfer on November 6, 2017. No other dates or proceedings have been scheduled at this time. The Company believes it has valid claims against Lilly and the right to seek injunctive relief and damages. However, litigation is inherently uncertain, and the Company cannot predict the outcome of this litigation.

Patent Litigation

Eli Lilly and Company. v. Eagle Pharmaceuticals, Inc.(Pemetrexed)

On August 14, 2017, Lilly filed suit against the Company in the United States District Court for the Southern District of Indiana (the “Indiana Suit”). Lilly alleged patent infringement based on the filing of the Company’s 505(b)(2) NDA seeking approval to manufacture and sell the Company’s PEMFEXY^TM (Pemetrexed Injection), 25 mg/mL, 500 mg vials ("Eagle’s Pemfexy Product"). Eagle’s Pemfexy Product, if finally approved by FDA, will be a branded alternative to Alimta^®, which is indicated (in combination with cisplatin) (a) for the treatment of patients with malignant pleural mesothelioma, or (b) for the initial treatment of locally advanced or metastatic nonsquamous non-small cell lung cancer. Alimta^® also is indicated as a single-agent for the treatment of patients with locally advanced or metastatic nonsquamous non-small cell lung cancer after prior chemotherapy. Alimta^® also is indicated for maintenance treatment of patients with locally advanced or metastatic nonsquamous non-small cell lung cancer whose disease has not progressed after four cycles of platinum-based first-line chemotherapy.

On September 8, 2017, Eagle moved to dismiss the Indiana Suit for improper venue. On September 11, 2017, Lilly voluntarily dismissed the Indiana Suit. It then filed a complaint in the United States District Court for the District of Delaware, alleging similar patent infringement claims (the “Delaware Suit”). Eagle answered and filed various counterclaims in the Delaware Suit on October 3, 2017. Lilly answered Eagle’s counterclaims on October 24, 2017. The case is pending and the Court has ordered a scheduling conference on December 11, 2017.

Eagle Pharmaceuticals, Inc., et al. v. Slayback Pharma Limited Liability Company; Eagle Pharmaceuticals, Inc., et al. v. Apotex Inc. and Apotex Corp.; Eagle Pharmaceuticals, Inc., et al. v. Fresenius Kabi USA, LLC - (BENDEKA^®)

BENDEKA^®, which contains bendamustine hydrochloride, is an alkylating drug that is indicated for the treatment of patients with chronic lymphocytic leukemia, as well as for the treatment of patients with indolent B-cell non-Hodgkin's lymphoma that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. Three companies - Slayback Pharma Limited Liability Company (“Slayback”), Apotex Inc. and Apotex Corp. (“Apotex”), and Fresenius Kabi USA, LLC (“Fresenius”) - have filed Abbreviated New Drug Applications (“ANDA’s”) referencing BENDEKA^® that include challenges to one or more of the BENDEKA^® Orange Book-listed patents.

EAGLE PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

The Company, Cephalon, Inc. and/or Teva Pharmaceuticals International GMBH (together the “Patentees”), filed separate suits against Slayback, Apotex and Fresenius in the United States District Court for the District of Delaware on August 16, 2017, August 18, 2017, and August 24, 2017, respectively. The Patentees allege infringement of the challenged patents, namely U.S. Patent No. 8,791,270 against Slayback, and of U.S. Patent Nos. 8,609,707, 8,791,270, 9,000,021, 9,034,908, 9,144,568, 9,265,831, 9,572,796, 9,572,797, 9,572,887, 9,579,384, 9,597,397, 9,597,398, 9,597,399 against Fresenius and Apotex. Slayback and Fresenius answered the complaints and filed various counterclaims on September 29, 2017 and September 15, 2017, respectively. The Patentees answered Slayback’s counterclaims on October 20, 2017, and Fresenius’ counterclaims on October 6, 2017. Apotex has not yet answered the Patentees’ complaint against it. All three cases are pending.

The FDA is stayed from approving Slayback’s, Apotex’s and Fresenius’ ANDA’s until the earlier of (1) January 6, 2020, January 7, 2020, and January 14, 2020 respectively (the “30-month stay dates”); and (2) a court decision that each of the challenged patents is not infringed, invalid or unenforceable. The 30-month stay dates may be shortened or lengthened if either party to the action fails to reasonably cooperate in expediting the action.

13. Debt

At closing, $50 million of the term loan facility was drawn, and none of the revolving credit facility has been drawn. The Company may make one other draw on the term loan facility on or before February 4, 2018. The Amended Credit Facility includes a $5 million letter of credit subfacility. The Company anticipates that the draw at closing and future draws under the Amended Credit Facility, if any, will be used to finance the New Share Repurchase Program (as defined below) and for other corporate purposes. Loans under the Amended Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 2.25% to 3.00% per annum, based upon the total net leverage ratio (as defined in the Amended Credit Agreement), or (b) the prime lending rate, plus an applicable margin ranging from 1.25% to 2.00% per annum, based upon the total net leverage ratio. The Company is required to pay a commitment fee on the unused portion of the Amended Credit Facility at a rate ranging from 0.35% to 0.45% per annum based upon the total net leverage ratio. The Company is permitted to terminate or reduce the revolving commitments or term commitments of the lenders and to make voluntary prepayments at any time subject to break funding payments. The Company is required to make mandatory prepayments of outstanding indebtedness under the Amended Credit Agreement (a) upon receipt of proceeds from certain sales, transfers or other dispositions, casualty and other condemnation events and the incurrence of certain indebtedness other than indebtedness permitted, subject to customary reinvestment exceptions and (b) in the case that the aggregate amount of all outstanding loans and letters of credit issued under the Amended Credit Facility exceed the aggregate commitment of all lenders under the Amended Credit Facility. The Company is obligated to repay the term loan facility on the last day of each March, June, September and December in an aggregate principal amount equal to 2.5% during the term of the loan.

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

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 15, 2017. Unless otherwise indicated or required by context, reference throughout to "Eagle," the "Company," "we," "our," or "us" refer to financial information and transactions of Eagle Pharmaceuticals, Inc.

Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. The words “may,” “will,” “plan,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “should,” “estimate,” “predict,” “project,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those projected in the forward-looking statements.

Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified under Part I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 15, 2017, as updated in our Quarterly Reports on Form 10-Q subsequently filed during the current fiscal year, including this report. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

Our business model is to develop proprietary innovations to FDA-approved, injectable drugs that offer commercial and/or functional advantages to currently available alternatives. We have historically been, and will continue to primarily be, focused on developing and commercializing injectable drugs, primarily in the critical care and oncology areas, using the United States Food and Drug Administration (“FDA”)'s 505(b)(2) New Drug Application (“NDA”) regulatory pathway. With our addition of Eagle Biologics, we hope to apply our proven market strategy to offer “biobetter” formulations, and to rapidly develop novel biologic products under the pathway provided by the Biologics Price Competition and Innovation Act. In addition, we plan to continue to market and/or commercialize our products through marketing partners and/or through our growing internal direct sales force.

Our product portfolio now includes four approved products: Argatroban, Ryanodex® (dantrolene sodium) (“Ryanodex”), docetaxel injection, non-alcohol formulation (“Non-Alcohol Docetaxel Injection”), and rapidly infused bendamustine RTD (“Bendeka”). We have three commercial partners: Teva Pharmaceutical Industries Ltd. ("Teva"), which, through its subsidiary Cephalon, Inc. ("Cephalon"), markets Bendeka® and Chiesi USA, Inc. ("Chiesi") and Sandoz Inc. (“Sandoz”), who, pursuant to separate agreements, market Argatroban. Bendeka was commercially launched by Teva in January 2016.

We currently have multiple product candidates in advanced stages of development and/or under review for approval by the FDA. Additionally, we have other exploratory candidates under a collaborative agreement entered into in January 2016 with Albany Molecular Research, Inc. ("AMRI"). Our advanced candidates are EP-3101 (bendamustine RTD) ("EP-3101 RTD"), EP-4104 (dantrolene sodium for exertional heat stroke ("EHS")) (“EP-4104”), EGL-4104-C-1702 (dantrolene sodium for psychostimulant drug-induced toxicity), EP-5101 (pemetrexed) (“EP-5101”) and EGL-5385-C-1701 (fulvestrant). EP-3101 RTD has been tentatively approved by the FDA. EP-5101 and EP-4104, both unapproved, may address unmet medical needs in major specialty markets. The Company recently received a Complete Response Letter for EP-4104 and is working to determine the path forward for the product.

Recent Developments

Pursuant to an exclusive U.S. licensing agreement (the "Teikoku Agreement") with Teikoku Pharma USA, Inc. ("Teikoku"), in January 2016, the Company made an additional payment of $4.85 million to Teikoku following FDA approval of Non-Alcohol Docetaxel Injection and NDA transfer to Eagle. The Company accounted for the transaction as a business combination in 2016. The results of operations related to Non-Alcohol Docetaxel Injection have been included in the statements of income from the date of acquisition. The Company did not incur any significant acquisition related costs in connection with the Non-Alcohol Docetaxel Injection acquisition.

On March 24, 2016, the FDA denied the Company's request for seven years of orphan drug exclusivity in the U.S., for Bendeka.

In April 2016, the Company filed a lawsuit against the FDA arguing that Bendeka is entitled to orphan drug exclusivity as a matter of law (see Part II, Item I - Legal Proceedings). On July 2, 2014, the FDA granted us orphan drug designations for Bendeka for the treatment of chronic lymphocytic leukemia (“CLL”) and indolent B-cell non-Hodgkin's lymphoma (“NHL”). The designations were based on a plausible hypothesis that Bendeka is “clinically superior” to a drug previously approved for the same indications. Generally, an orphan-designated drug is eligible for seven years of marketing exclusivity for the orphan-designated indications upon approval of the drug for those indications. If granted, orphan drug exclusivity for Bendeka would run for seven years from December 7, 2015, the date Bendeka was approved.

agreement, the purchaser will pay the Company a 25% royalty on net profits of diclofenac-misoprostol in the territory for five years from the date of sale. The Company may continue to market diclofenac-misoprostol until such time that the purchaser is able to launch the product.

On July 5, 2016, we announced that Douglas L. Braunstein, co-founder of Hudson Executive Capital LP and former Vice Chairman and Chief Financial Officer, JPMorgan Chase & Co., and Robert Glenning, President Financial Services Division and Chief Financial Officer, Hackensack Meridian Health, joined Eagle’s board of directors.

On August 3, 2016, the Company entered into an amendment to our agreement with Lyotropic Therapeutics, Inc. to reduce future royalties related to Ryanodex net sales from 15% to 3% (subject to further reduction upon the occurrence of certain triggering events) in exchange for $15 million.

On August 9, 2016, the Company announced a share repurchase program approved by the Company’s board of directors authorizing the repurchase of up to $75.0 million of the Company’s common stock (the “Share Repurchase Program”). On August 9, 2017, the Company announced a new share repurchase program approved by the Board, under which the Company may repurchase up to an additional $100 million of its outstanding common stock (the “New Share Repurchase Program”). Under the Share Repurchase Program and the New Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Programs have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using our cash resources. In any period, cash used in financing activities related to shares repurchased may differ from the comparable change in stockholders' equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash. We repurchased 583,599 shares of common stock for $38.8 million during the nine months ended September 30, 2017, and a total of 566,838 shares of common stock for $37.0 million in the year ended December 31, 2016.

During the quarter-ended September 30, 2016, we entered into an amendment to the Exclusive License Agreement originally entered into with Cephalon (the "Cephalon License") and the related supply agreements for Bendeka. Prior to such amendment (and as consented to by Eagle), Cephalon assigned to Teva Pharmaceuticals International GmbH ("TPIG") all of Cephalon’s rights and obligations under the Cephalon License. Accordingly, all references to “Cephalon” or to the “Cephalon License” and the related supply agreements for Bendeka should be read and construed as references to TPIG and to the license agreement and supply agreements for Bendeka to which Eagle and TPIG are now parties. The amendment expands the geographical scope of the rights granted under the original agreement to include certain territories outside the US and Canada. In accordance with this amendment, we recorded $1.75 million in license and other revenue in the consolidated statements of operations for the year-ended December 31, 2016. We are also eligible to receive up to $750 thousand on each regulatory approval received in certain additional territories, not to exceed $2.25 million, as well as royalties on future sales.

On November 2, 2016, the Centers for Medicare and Medicaid Services (CMS) established a unique, product-specific billing code, J-code J9034 (the “J-Code”), for Bendeka. The J-Code became effective on January 1, 2017. The new J-Code provides reimbursement coding clarity to outpatient facilities and physicians that administer Bendeka, facilitating access for patients and Medicare, Medicaid and commercial insurance reimbursement. Under the terms of the Cephalon License, the Company received a $40 million milestone in the fourth quarter of 2016 in connection with the receipt of the J-Code for Bendeka. Additionally, this event triggered an increase in the royalty rate from 20% to 25% of Bendeka net sales. In Q1 of 2017, Bendeka reached $500 million in cumulative net sales, triggering an additional $25 million sales-based milestone payment.

On November 16, 2016, the Company entered into a stock purchase agreement to acquire Arsia Therapeutics, Inc. (“Arsia”), an early-stage biotechnology firm with proprietary viscosity-reducing technology and formulation know-how and subsequently renamed the subsidiary Eagle Biologics, Inc. Under the terms of the stock purchase agreement, at closing Eagle paid approximately $27.2 million in cash and 40,200 shares of Eagle common stock worth $3.0 million. Eagle also agreed to pay up to $48 million in additional payments upon the completion of certain milestones, for aggregate potential payments of $78 million. As part of the agreement, Eagle Biologics founders and Massachusetts Institute of Technology professors, Dr. Robert Langer and Dr. Alexander Klibanov, as well as other key members of the Eagle Biologics team, entered into agreements to work with Eagle to develop new formulations and solve delivery challenges with large molecules products.

On January 2, 2017, in connection with his appointment as President and Chief Commercial Officer of the Company, David Pernock resigned from the board of directors.

On March 16, 2017, we announced that Richard A. Edlin, Vice Chair, Chair of the Litigation Practice in New York and member of the Executive Committee of the law firm Greenberg Traurig, LLP, joined Eagle’s board of directors, effective as of March 17, 2017.

During the quarter-ended March 31, 2017, under the terms of the Cephalon License, the Company earned a $25 million milestone payment as Teva reached $500 million in cumulative net sales of Bendeka, which is included in license and other revenue on the condensed consolidated statements of income.

On May 15, 2017, we announced the appointment of Pete A. Meyers as Chief Financial Officer of the Company. In addition, Mr. Meyers serves as the Company’s principal financial officer and principal accounting officer.

On July 26, 2017, the Company received a Complete Response Letter from the FDA regarding its 505(b)(2) NDA for Ryanodex for the treatment of EHS, in conjunction with external cooling methods. The FDA has requested that the Company conduct an additional clinical trial for Ryanodex for EHS. We disagree with the FDA’s conclusion and are currently evaluating our options.

On September 20, 2017, the Company entered into a Product Collaboration and License Agreement, effective as of September 19, 2017, (the “SymBio License Agreement”) with SymBio Pharmaceuticals Limited (“SymBio”) for the rights to develop and commercialize the Company’s bendamustine hydrochloride ready-to-dilute injection product and rapid infusion injection product (collectively, the “Products”) in Japan. Under the License Agreement, SymBio will be responsible for all development of the Products in Japan and for obtaining and maintaining all regulatory approvals of the Products in Japan, with a target for regulatory approval of a Product in Japan in 2020. SymBio will bear all costs of development of the Products in Japan except that, if Japanese regulatory authorities require a certain clinical study to be conducted as a condition for approving one of the Products in Japan, Eagle would share 50% of the out-of-pocket costs of that clinical study up to a specified dollar amount as a reduction to future royalty payments. Based on the Company's assessment of the probability of additional costs, we have not deferred revenue on the Symbio License Agreement. SymBio will also be responsible, at its sole cost, for all marketing, promotion, distribution and sales of the Products in Japan and is obligated to launch the Products and meet certain minimum detailing, promotion and marketing commitments in connection with commercialization of the Products in Japan.

the right to control the prosecution, maintenance and enforcement of the Company’s patents covering the Products, both inside and outside of Japan.

Under the SymBio License Agreement, the Company earned an upfront non-refundable cash payment of $12.5 million in the third quarter of 2017, and is eligible to receive a milestone payment upon approval of a Product in Japan and a milestone payment upon achievement of certain cumulative net sales of the Products in Japan. After regulatory approval of a Product in Japan, the Company will also receive tiered, low double-digit royalties on net sales of the Products in Japan for so long as there are patents covering the Products in Japan or regulatory exclusivity for the Products in Japan.

On October 27, 2017, the FDA granted tentative approval for the Company’s PEMFEXY™, a pemetrexed injection ready-to-dilute formulation for locally advanced or metastatic nonsquamous non-small cell lung cancer in combination with cisplatin; locally advanced or metastatic nonsquamous non-small cell lung cancer in patents whose disease has not progressed after four cycles of platinum-based first-line chemotherapy, as maintenance treatment; locally advanced or metastatic nonsquamous non-small cell lung cancer after prior chemotherapy as a single agent; and malignant pleural mesothelioma in patients whose disease is unresectable or who are otherwise not candidates for curative surgery in combination with cisplatin.

Financial Operations Overview

Revenue

Revenue includes product sales, royalty revenue and license and other revenue.

Product Sales. We recognize revenues from product sales of Bendeka, Ryanodex, Argatroban, Non-Alcohol Docetaxel Injection, and diclofenac-misoprostol. Sales of Bendeka are sold to our commercial partner Teva. Argatroban is sold to our commercial partners Chiesi and Sandoz. Sales to our commercial partners are typically made at little or no profit for resale. Ryanodex, Non-Alcohol Docetaxel Injection, and diclofenac-misoprostol are sold directly to wholesalers, hospitals and surgery centers through a third party logistics partner. Diclofenac-misoprostol was divested in March 2016, however, we may continue to market diclofenac-misoprostol until such time that the purchaser is able to launch the product.

We typically enter into agreements with group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals’ purchases of our direct commercial products. Based on these agreements, most of our hospital customers have contracted prices for products and volume-based rebates on product purchases. These amounts are estimated and recorded at the time of sale. In the case of discounted pricing, we typically pay a chargeback, representing the difference between price invoiced to the wholesaler and the customer contract price.

Royalty revenue. We recognize revenue from royalties based on a percentage of Teva's net sales of Bendeka and Sandoz's and Chiesi's gross profit of Argatroban, both net of discounts, returns and allowances incurred by our commercial partners. Royalty revenue is recognized as earned in accordance with contract terms when it can be reasonably estimated and collectability is reasonably assured.

License and other revenue. We have recognized license revenue from Teva related to Bendeka.

Our revenues may either be in the form of the recognition of deferred revenues upon milestone achievement for which cash has already been received or recognition of revenue upon milestone achievement, the payment for which is reasonably assured to be received in the future.

The primary factors that determine our revenues derived from Bendeka are:


•	the level of orders submitted by our commercial partner, Teva;


•	the rate at which Teva can convert the current market to Bendeka;


•	the level of institutional demand for Bendeka;


•	unit sales prices charged by our commercial partner, net of any sales reserves; and


•	the level of orders submitted by wholesalers, hospitals and surgery centers.

The primary factors that may determine our revenues derived from Argatroban are:


•	the level of orders submitted by our commercial partners, Sandoz and Chiesi;


•	the level of institutional demand for Argatroban; and


•	unit sales prices charged by our commercial partners, net of any sales reserves.

The primary factors that may determine our revenues derived from Non-Alcohol Docetaxel Injection, Ryanodex and our future products are:


•	the effectiveness of our sales force;


•	the level of orders submitted by wholesalers, hospitals and surgery centers;


•	the level of institutional demand for our products; and


•	unit sales prices, net of any sales reserves.

Cost of Revenues

Cost of revenue consists of the costs associated with producing our products for our commercial partners. In particular, our cost of revenue includes production costs of our products paid to a contract manufacturing organization coupled with shipping and customs charges, cost of royalty and the amortization of intangible assets. Cost of revenue may also include the effects of product recalls, if applicable.

Research and Development

Our research and development expenses consist of costs incurred in developing, testing, manufacturing and seeking regulatory approval of our product candidates. These costs include expenses associated with regulatory submissions, clinical trials and manufacturing, including additional expenses in preparing for the commercial manufacture of products; payments made to third-party clinical research organizations, contract laboratories and independent contractors; payments made to consultants who perform research and development on our behalf and assist us in the preparation of regulatory filings; payments made to third-party investigators who perform research and development on our behalf and clinical sites where such research and development is conducted; and facility, maintenance, allocated rent, utilities, depreciation, amortization and other related expenses. Additionally, expenses include salaries, benefits and other related costs, including stock-based compensation for research and development personnel.

Clinical trial expenses for our product candidates may continue to be a significant component of our research and development expenses. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development. We coordinate clinical trials through a number of contracted investigational sites and recognize the associated expense based on a number of factors, including actual and estimated subject enrollment and visits, direct pass-through costs and other clinical site fees.

We expect to incur additional research and development expenses as we accelerate the development of our product portfolio, both internally and through our joint development agreement with AMRI, as applicable. These expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of clinical trials may take several years or more and the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.

Selling, General and Administrative

Selling, general and administrative costs consist of personnel-related costs, which include salaries, benefits and other related costs, including stock-based compensation, as well as facility and related costs, professional fees for legal, consulting, tax and accounting services, insurance, selling, marketing, market research, depreciation and general corporate expenses.

Income Taxes

We account for income taxes using the liability method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate changes. A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In the 4th quarter of 2016, the Company reversed its valuation allowance on our net deferred tax assets (See Note 11 - Income Taxes). ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction. We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Results of Operations

Comparison of Three Months Ended September 30, 2017 and 2016

Revenues



	Three Months Ended September 30,				(Decrease)/ Increase
	2017		2016		(Decrease)/ Increase
	(in thousands)
Product sales	$	6,905	$	7,837	$	(932	)
Royalty revenue	43,616		26,246		17,370
License and other revenue	12,500		3,750		8,750
Total revenue	$	63,021	$	37,833	$	25,188

Total revenue increased $25.2 million in the three months ended September 30, 2017 to $63.0 million as compared to $37.8 million in the three months ended September 30, 2016.

Product sales decreased $0.9 million in the three months ended September 30, 2017 primarily driven by decreases in product sales of Bendeka of $1.2 million and Argatroban of $0.4 million. These decreases were partially offset by an increase of $0.7 million in net product sales of Ryanodex.

Royalty revenue increased $17.4 million primarily as a result of increased Bendeka market share on Teva sales amplified by an increase in the Bendeka royalty rate from 20% to 25% upon receipt of the J-code, partially tempered by a decrease in Argatroban royalties.

License and other revenue increased for the three months ended September 30, 2017 as we realized a $12.5 million upfront cash payment earned under the SymBio License Agreement. License and other revenue for the three months ended September 30, 2016 included $2.0 million as the Company met certain one-time performance obligations and $1.8 million related to the amendment of the license and supply agreement with Teva, expanding the territories for commercial sales of Bendeka.

Cost of Revenue



	Three Months Ended September 30,				(Decrease)/ Increase
	2017		2016		(Decrease)/ Increase
	(in thousands)
Cost of product sales	$	4,815	$	6,000	$	(1,185	)
Cost of royalty revenue	6,850		4,425		2,425
Total cost of revenue	$	11,665	$	10,425	$	1,240

Cost of revenue increased by $1.2 million to $11.6 million in the three months ended September 30, 2017 as compared to $10.4 million in the three months ended September 30, 2016.

Cost of product sales decreased $1.2 million in the three months ended September 30, 2017 to $4.8 million as compared to $6.0 million in the three months ended September 30, 2016, primarily as a result of decreased product sales of Bendeka and Argatroban. These decreases were partially offset by increases in product cost for Ryanodex and Non-Alcohol Docetaxel Injection.

Cost of royalty revenue increased $2.4 million in the three months ended September 30, 2017 to $6.8 million as compared to $4.4 million in the three months ended September 30, 2016, primarily as a result of an increase in the cost of product royalty for Bendeka offset by a decrease for Argatroban.

Research and Development



	Three Months Ended September 30,				Increase
	2017		2016		Increase
	(in thousands)
Research and development	$	8,954	$	3,207	$	5,747

Research and development expenses increased $5.8 million in the three months ended September 30, 2017 to $9.0 million as compared to $3.2 million in the three months ended September 30, 2016. The increase primarily resulted from an increase in project spending for EP-5101, EP-4104, EGL-4104-C-1702, EGL-5385-C-1701, certain other projects and higher salary and personnel-related expenses. These increases were partially offset by a decrease in project spending for EP-6101. Additionally, during the three months ended September 30, 2016, the Company reached a settlement related to a dispute on materials provided for certain research and development projects. As a result of the settlement, the Company received a credit of $2.4 million which was recorded as a reduction of research and development expense.

Selling, General and Administrative



	Three Months Ended September 30,				Increase
	2017		2016		Increase
	(in thousands)
Selling, general and administrative	$	16,669	$	11,661	$	5,008

Selling, general and administrative expenses increased $5.0 million in the three months ended September 30, 2017 to $16.7 million as compared to $11.7 million in the three months ended September 30, 2016. This increase is primarily related to a $2.8 million increase in salary and personnel-related expenses, including stock based compensation expense, as we build out areas to support the growing needs of the business and sales force, $1.7 million increase in professional fees, and $0.4 million expense in 2017 for amortization of the definite-lived intangible asset acquired in the Eagle Biologics acquisition. These increases were partially offset by a $0.5 million decrease in sales and marketing spend.

Asset Impairment Charge

During the nine months ended September 30, 2017, the Company experienced a decline in customer contracts and saw a drop in market pricing for Non-Alcohol Docetaxel Injection. Accordingly, the Company estimated the fair value of our Non-Alcohol Docetaxel Injection product and determined the carrying amount of the intangible asset was no longer fully recoverable, resulting in a pre-tax, non-cash asset impairment charge of $7.2 million during the three months ended September 30, 2017.

Change in Fair Value of Contingent Consideration

Contingent consideration, which primarily consists of potential milestone payments and royalty obligations, is recorded in the Company's consolidated balance sheets at its estimated fair value at the acquisition date, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the Company's consolidated statements of income. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting.

Contingent consideration gain for $6.9 million was recorded during the three months ended September 30, 2017. This was primarily driven by adjustments to the fair values of the liabilities associated with Non-Alcohol Docetaxel Injection, which was remeasured as a result of changes in forecasted revenues for the product and partially offset by accretion for the time value of money.

Other Income (Expense)



	Three Months Ended September 30,						Decrease / Increase
	2017			2016			Decrease / Increase
	(in thousands)
Interest income	$	35		$	26		$	9
Interest expense	(527		)	(3		)	(524		)
Total other income (expense), net	$	(492	)	$	23		$	(515	)

Interest expense increased in the three months ended September 30, 2017 related to the amortization of debt issuance costs and interest incurred on long-term debt.

Provision for Income Taxes



	Three Months Ended September 30,
	2017			2016
	(in thousands)
Provision for income taxes	$	9,027		$	379
Effective tax rate	37		%	3		%

The provision for income taxes was based on the applicable federal and state tax rates for those periods. The effective tax rate for the three months ended September 30, 2017 reflects tax benefits related to stock option exercises in the period as well as credits for research and development activity. During the three months ended September 30, 2016, we maintained a full valuation allowance on tax assets. The amount of the provision for that period reflects the Company’s estimated federal AMT and state tax liability (see Note to Condensed Consolidated Financial Statements - Note 11 - Income Taxes).

Net Income

Net income for the three months ended September 30, 2017 was $15.4 million as compared to net income of $12.0 million in the three months ended September 30, 2016, as a result of the factors discussed above.

Comparison of Nine Months Ended September 30, 2017 and 2016

Revenues



	Nine Months Ended September 30,				Increase
	2017		2016		Increase
	(in thousands)
Product sales	$	34,895	$	31,566	$	3,329
Royalty revenue	117,527		67,025		50,502
License and other revenue	37,500		9,750		27,750
Total revenue	$	189,922	$	108,341	$	81,581

Total revenue increased $81.6 million in the nine months ended September 30, 2017 to $189.9 million as compared to $108.3 million in the nine months ended September 30, 2016.

Product sales increased $3.3 million in the nine months ended September 30, 2017, primarily driven by increases in product sales of Ryanodex of $5.1 million, Argatroban of $0.6 million, and Non-Alcohol Docetaxel Injection of $1.3 million. These increases were partially offset by decreases of $3.3 million in net product sales of Bendeka and $0.4 million in net product sales of diclofenac-misoprostol.

Royalty revenue increased $50.5 million in the nine months ended September 30, 2017, primarily as a result of increased Bendeka market share on Teva sales amplified by an increase in the Bendeka royalty rate from 20% to 25% upon receipt of the J-code.

License and other revenue increased for the nine months ended September 30, 2017 as we realized a $25.0 million milestone under the Cephalon agreement related to Teva reaching $500 million in cumulative net sales of Bendeka and a $12.5 million upfront cash payment earned under the SymBio License Agreement. License and other revenue for the nine months ended September 30, 2016 was comprised of $6.0 million earned from an asset sale in fiscal 2010 that was previously recorded as deferred revenue, $2.0 million as the Company met certain one-time performance obligations and $1.8 million related to the amendment of the license and supply agreement with Teva, expanding the territories for commercial sale of Bendeka.

Cost of Revenue



	Nine Months Ended September 30,				(Decrease) /Increase
	2017		2016		(Decrease) /Increase
	(in thousands)
Cost of product sales	24,490		25,949		$	(1,459	)
Cost of royalty revenue	18,990		10,538		8,452
Total cost of revenue	$	43,480	$	36,487	$	6,993

Cost of revenue increased by $7.0 million to $43.5 million in the nine months ended September 30, 2017 as compared to $36.5 million in the nine months ended September 30, 2016.

Cost of product sales decreased $1.5 million in the nine months ended September 30, 2017 to $24.5 million as compared to $26.0 million in the nine months ended September 30, 2016, primarily as a result of decreased product sales of Bendeka, offset by increases in product sales of Ryanodex, Non-Alcohol Docetaxel Injection and Argatroban.

Cost of royalty revenue increased $8.5 million in the nine months ended September 30, 2017 to $19.0 million as compared to $10.5 million in the nine months ended September 30, 2016, as a result of an increase in the cost of product royalty for Bendeka.

Research and Development



	Nine Months Ended September 30,		Increase
	2017	2016	Increase
	(in thousands)
Research and development	23,163	13,612	$	9,551

Research and development expenses increased $9.6 million in the nine months ended September 30, 2017 to $23.2 million as compared to $13.6 million in the nine months ended September 30, 2016. The increase resulted from an increase in project spending for EGL-5385-C-1701, EP-5101, EP-4104, EGL-4104-C-1702, certain other projects and an increase in salary and other personnel-related expenses due to increased headcount. These increases were partially offset by a decrease in project spending for EP-6101. Additionally, we received certain cost reimbursements from a commercial partner for $1.6 million and a $2.4 million credit from a supplier related to a dispute that was resolved during the nine months ended September 30, 2016.

Selling, General and Administrative



	Nine Months Ended September 30,				Increase
	2017		2016		Increase
	(in thousands)
Selling, general and administrative	$	58,100	$	34,300	$	23,800

Selling, general and administrative expenses increased $23.8 million in the nine months ended September 30, 2017 to $58.1 million as compared to $34.3 million in the nine months ended September 30, 2016. This increase is principally related to a $8.4 million increase in salary and personnel-related expenses, including stock-based compensation expense, as we build out areas to support the growing needs of the business and sales force, $8.5 million increase in sales and marketing spend in preparation for the launch of Ryanodex for exertional heat stroke, $3.7 million increase in professional fees mainly for legal matters, $1.2 million expense in 2017 for amortization of the definite-lived intangible asset acquired in the Eagle Biologics acquisition, and $0.6 million increase in travel expenses.

Asset Impairment Charge

Change in Fair Value of Contingent Consideration

Contingent consideration gain for $6.9 million was recorded during the nine months ended September 30, 2017. This was primarily driven by adjustments to the fair values of the liabilities associated with Non-Alcohol Docetaxel Injection, which was remeasured as a result of changes in forecasted revenues for the product and partially offset by accretion for the time value of money.

Gain on sale of asset

On March 29, 2016, we entered into the Diclofenac Asset Purchase Agreement pursuant to which we sold certain intellectual property related to diclofenac-misoprostol in the United States. In consideration of the assets and rights sold under the Diclofenac Asset Purchase Agreement, we received a one-time payment at closing of $1.75 million included in operating expenses.

Other Income (Expense)



	Nine Months Ended September 30,						Decrease / Increase
	2017			2016			Decrease / Increase
	(in thousands)
Interest income	$	52		$	76		$	(24	)
Interest expense	(594		)	(6		)	(588		)
Total other income (expense), net	$	(542	)	$	70		$	(612	)

Interest expense increased in the nine months ended September 30, 2017 related to the amortization of debt issuance costs and interest incurred on long-term debt.

Provision for Income Taxes



	Nine Months Ended September 30,
	2017			2016
	(in thousands)
Provision for income taxes	$	20,148		$	983
Effective tax rate	32		%	4		%

The provision for income taxes was based on the applicable federal and state tax rates for those periods. The effective tax rate for the nine months ended September 30, 2017 reflects tax benefits related to stock option exercises in the period as well as credits for research and development activity. During the nine months ended September 30, 2016, we maintained a full valuation allowance on tax assets. The amount of the provision for that period reflects the Company’s estimated federal AMT and state tax liability (see Note to Condensed Consolidated Financial Statements - Note 11 - Income Taxes).

Net Income

Net income for the nine months ended September 30, 2017 was $42.9 million as compared to net income of $24.2 million in the nine months ended September 30, 2016, as a result of the factors discussed above.

Liquidity and Capital Resources

Our primary uses of cash are to fund working capital requirements, product development costs and operating expenses. Historically, we have funded our operations primarily through public offerings of common stock, private placements of preferred stock and convertible notes and out-licensing product rights. Cash and cash equivalents were $97.5 million and $59.3 million as of September 30, 2017 and September 30, 2016, respectively.

For the nine months ended September 30, 2017, we realized net income of $42.9 million. As of September 30, 2017, we had a working capital surplus of $147.8 million. For the nine months ended September 30, 2016, we realized net income of $24.2 million. Although the Company has incurred significant losses since its inception in January 2007, we recently became profitable and have retained earnings of $17.2 million as of September 30, 2017.

We believe that future cash flows from operations will be sufficient to fund our currently anticipated working capital requirements.

The Company expects to use future loans, if any, under the Credit Facility (described above under "Recent Developments"), for general corporate purposes and any strategic acquisitions.

Operating Activities:

Net cash provided by operating activities for the nine months ended September 30, 2017 was $33.0 million. Net income for the period was $42.9 million offset by non-cash adjustments of approximately $28.3 million from deferred income taxes, depreciation, amortization of intangible assets, stock-based compensation expense, asset impairment charge, amortization of debt issuance costs, and change in fair value of contingent consideration. Net changes in working capital decreased cash from operating activities by approximately $38.2 million, due to an increase in accounts receivable of $29.4 million, an increase in inventories of $2.1 million, a decrease in prepaid expenses and other current assets of $3.2 million, a decrease in accounts payable of $5.8 million, and a decrease in accrued expenses and other liabilities of $4.1 million. The total amount of accounts receivable at September 30, 2017 was approximately $71.6 million, which included approximately $15.5 million of product sales and $56.1 million of royalty and milestone income, all with payment terms of 45 days. For royalty income, the 45-day period starts at the end of the quarter upon receipt of the royalty statement detailing the amount of sales in the prior completed quarter, and, for product sales, the period starts upon delivery of product.

Net cash provided by operating activities for the nine months ended September 30, 2016 was $13.7 million. Net income for the period was $24.2 million offset by non-cash adjustments of approximately $7.3 million from depreciation, amortization of intangible assets, stock-based compensation expense, royalty interest related to the Non-Alcohol Docetaxel Injection acquisition and gain on sale of diclofenac-misoprostol. Net changes in working capital decreased cash from operating activities by approximately $17.8 million, due to an increase in accounts receivable of $20.8 million, an increase in prepaid expenses and other current assets of $3.7 million, an increase in accounts payable of $7.8 million, a decrease in inventories of $7.9 million, a decrease in deferred revenue of $6.0 million, a decrease in other assets of $0.1 million, and a decrease in accrued expenses and other liabilities of $3.1 million. The total amount of accounts receivable at September 30, 2016 was approximately $47.1 million, which included approximately $7.5 million of product sales, $34.0 million of royalty income, $1.8 million in cost reimbursements and $3.8 million in other, all with payment terms of 45 days. For royalty income, the 45-day period starts at the end of the quarter upon receipt of the royalty statement detailing the amount of sales in the prior completed quarter, and, for product sales, the period starts upon delivery of product.

Investing Activities:

In the nine months ended September 30, 2017, we invested $1.7 million in purchases of property and equipment and paid $0.8 million related to the purchase of the Ryanodex intangible.

In the nine months ended September 30, 2016, we invested $1.1 million in purchases of property and equipment and invested and redeemed $62.0 million of short term investments. We purchased Non-Alcohol Docetaxel Injection for $4.8 million and the Ryanodex intangible for $14 million. We divested diclofenac-misoprostol and received $1.8 million.

Financing Activities:

Net cash used in financing activities for the nine months ended September 30, 2017 was $14.2 million, primarily resulting from $50.0 million in proceeds from long-term debt and the issuance of common stock for stock option exercises of $4.1 million. This was offset by $38.9 million in cash settlements on repurchases of common stock and $1 million payment of debt financing costs.

Net cash used in financing activities for the nine months ended September 30, 2016 was $15.2 million, primarily resulting from $16.5 million in cash settlements on repurchases of common stock and a $0.2 million payment of contingent consideration offset by the issuance of common stock for stock option exercises of $1.5 million.

Contractual Obligations

Our future material contractual obligations include the following (in thousands):



	Total		2017	2018	2019	2020	2021	Beyond
Operating lease obligations	$	2,661	167	670	674	395	117	638
Purchase obligations	$	17,895	17,895	—	—	—	—	—

At September 30, 2017, the Company has purchase obligations in the amount of $17,895, which represent the contractual commitments under Contract Manufacturing and Supply Agreements with suppliers. The obligation under the supply agreement is primarily for finished product, inventory, and research and development.

Recent Accounting Pronouncements

Recent Accounting Pronouncements - Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this new standard will increase assets and liabilities on our balance sheet when adopted. We are still fully assessing the overall impact of this ASU on our financial position and results of operations.

In January 2017, the FASB issued guidance to simplify the measurement of goodwill. The guidance eliminates Step 2 from the goodwill impairment test. Instead, under the amendments in this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for interim or annual goodwill impairment tests performed for testing dates after January 1, 2017. The guidance must be adopted on a prospective basis. We do not expect this guidance to have an impact on our consolidated financial statements.

Recent Adopted Accounting Pronouncements

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of Inflation

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the nine months ended September 30, 2017, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 15, 2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation at September 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, due to a material weakness in internal control over financial reporting described in Part II, Item 9A of our 2016 Form 10-K, our disclosure controls and procedures were not effective as of September 30, 2017.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

As previously described in Part II, Item 9A of our 2016 Form 10-K, we began implementing a remediation plan to address the control deficiency that led to the material weakness mentioned above. We have assessed the appropriateness of our current outsourced tax support model and have engaged a nationally recognized accounting firm to assist in the preparation and review of our quarterly and annual tax provisions and to advise on any applicable rule or tax-related changes. In addition, we have begun taking the following actions to improve the design and operating effectiveness of our internal control:


(i)	strengthen and formalize our tax provision review control with improved documentation standards and oversight;


(ii)	formalize a policy and procedure for the communication and review of non-routine tax matters by senior management; and


(iii)	as appropriate, engage external tax advisors with respect to non-routine tax matters.

Our enhanced review procedures and documentation standards were in place and operating during the nine months ended September 30, 2017. We are in the process of testing the newly implemented internal controls and related procedures. The material weakness cannot be considered remediated until the control has operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate this material weakness by the end of 2017.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Commercial Litigation

In Re: Taxotere (Docetaxel)

Medicines Company v. Eagle

Bauer v. Eagle

motion to withdraw their appeal and, on October 5, 2017, the Court of Appeals issued an order dismissing the appeal without costs to either party.

Eagle v. Burwell

Eagle v. Eli Lilly

Patent Litigation

Eli Lilly and Company. v. Eagle Pharmaceuticals, Inc.(Pemetrexed)

8,791,270 against Slayback, and of U.S. Patent Nos. 8,609,707, 8,791,270, 9,000,021, 9,034,908, 9,144,568, 9,265,831, 9,572,796, 9,572,797, 9,572,887, 9,579,384, 9,597,397, 9,597,398, 9,597,399 against Fresenius and Apotex. Slayback and Fresenius answered the complaints and filed various counterclaims on September 29, 2017 and September 15, 2017, respectively. The Patentees answered Slayback’s counterclaims on October 20, 2017, and Fresenius’ counterclaims on October 6, 2017. Apotex has not yet answered the Patentees’ complaint against it. All three cases are pending.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition, cash flows or future results. Except for the risk factors set forth below, there have been no material changes in our risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2016. The risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016 are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

We cannot give any assurance that we will receive regulatory approval for our product candidates, which is necessary before they can be commercialized.

Our business and future success are substantially dependent on our ability to successfully and timely develop, obtain regulatory approval for, and commercialize our product candidates. Any delay or setback in the development of any of these product candidates could adversely affect our business. In addition, the process for obtaining regulatory approval to market biologic products is expensive, often takes many years, and can vary substantially based on the type, complexity and novelty of the product candidate involved. Our planned development, approval and commercialization of these product candidates may fail to be completed in a timely manner or at all. The FDA or other foreign regulatory agency may refuse or delay approval of our product candidates for failure to collect sufficient clinical or animal safety data and require us or our collaborators to conduct additional clinical or animal safety studies, which may cause lengthy delays and increased costs to our programs. We cannot provide assurance that we will be able to obtain approval for any of our product candidates from the FDA or any foreign regulatory authority or that we will obtain such approval in a timely manner. If we do not obtain regulatory approval of new products or additional indications for existing products, or are significantly delayed or limited in doing so, our revenue growth will be adversely affected, we may experience surplus inventory, or our business may be materially harmed and we may need to significantly curtail operations. For example, in March of 2016 we received a Complete Response Letter from the FDA stating that while their initial review of our NDA for EP-6101 was complete, they could not approve the application in its present form and requested additional information. We have elected not to pursue the application further or seek to exploit EP-6101 for various reasons including the costs associated with addressing the information request in the FDA Complete Response Letter and because additional generic bivalirudin products have entered or are entering the market. Additionally, in July of 2017 we received a Complete Response Letter from the FDA regarding our 505(b)(2) NDA for Ryanodex for the treatment of EHS, in conjunction with external cooling methods. The FDA has requested that the Company conduct an additional clinical trial for Ryanodex for EHS. We disagree with the FDA’s conclusion and are currently evaluating our options in response, but there can be no assurance that the FDA will ultimately approve the NDA, or if so, in a timely fashion.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain

approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. To date, we have obtained regulatory approval for five NDA products, but no BLA products, and we have multiple NDA product candidates in advanced stages of development and other exploratory candidates under development. However, it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval in the United States or other jurisdictions.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:


•	the FDA or comparable foreign regulatory authorities may disagree that our changes to branded reference drugs or existing biologic drugs meet the criteria for our chosen regulatory pathway or foreign regulatory pathways;


•	we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective or comparable to its branded reference product for its proposed indication;


•	the results of any clinical trials we conduct may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;


•	we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;


•	the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and


•	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would harm our business, results of operations and prospects significantly.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates.

We have no experience submitting BLAs and have limited experience using the 505(b)(2) regulatory pathway to submit an NDA or any similar drug approval filing to the FDA, and we cannot be certain that any of our product candidates will receive regulatory approval. For example, in March of 2016 we received a Complete Response Letter from the FDA stating that while their initial review of our NDA for EP-6101 was complete, they could not approve the application in its present form and requested additional information. We have elected not to pursue the application further or seek to exploit EP-6101 for various reasons including the costs associated with addressing the information request in the FDA Complete Response Letter and because additional generic bivalirudin products have entered or are entering the market. Additionally, in July of 2017 we received a Complete Response Letter from the FDA regarding our 505(b)(2) NDA for Ryanodex for the treatment of EHS, in conjunction with external cooling methods. The FDA has requested that the Company conduct an additional clinical trial for Ryanodex for EHS. We disagree with the FDA’s conclusion and are currently evaluating our options in response, but there can be no assurance that the FDA will ultimately approve the NDA, or if so, in a timely fashion.

If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such products, if approved.

If we are unable to establish sales and marketing capabilities or if our commercial partners do not adequately perform, the commercial opportunity for our products may be diminished.

Although we intend to establish a commercial organization to promote certain of our approved products in the United States, we currently have limited experience, and the cost of establishing and maintaining such an organization may exceed the benefit of doing so. We have very limited prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team.

On November 4, 2015, we entered into the Spectrum Agreement under which Spectrum agreed to sell and market one of our products through June 2017. We had the option to extend the initial term of this agreement by six months to December 31, 2017 at our sole election, but we elected not to exercise that option and the Spectrum agreement has expired.

We and any other commercialization partner we engage in the future may not be able to attract, hire, train and retain qualified sales and sales management personnel. If we or our future partners, if any, are not successful in maintaining an effective number of

qualified sales personnel, our ability to effectively market and promote our products may be impaired. Even if we are able to effectively build and maintain such sales personnel, such efforts may not be successful in commercializing our products.

The efforts of our partners in many instances would likely be outside our control. If any future partner is unsuccessful in their efforts, or we are unable to maintain such commercial partnerships or to effectively establish alternative arrangements for our products, our business could be adversely affected.

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

Issuer Purchases of Equity Securities

The following table provides information about purchases of our equity securities during the three months ended September 30, 2017:



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part Publicly Announced Plans or Programs (2)(3)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
					(dollars in thousands)
July 1, 2017 to July 31, 2017	—	$	—	—	$	12,686
August 1, 2017 to August 31, 2017	253,691	$	54.10	253,691	99,192
September 1, 2017 to September 30, 2017	—	$	—	—	99,192
Total	253,691	$	54.10	253,691

(1) All shares repurchased by the Company in this table were repurchased pursuant to the Share Repurchase Programs, described below and elsewhere in this Quarterly Report on Form 10-Q.

(2) On August 9, 2016, the Company announced a share repurchase program approved by the Company’s board of directors authorizing the repurchase of up to $75.0 million of the Company’s common stock (the “Share Repurchase Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limit and may be suspended or discontinued completely at any time.

(3) On August 9, 2017, the Company announced a new share repurchase program approved by the Board, under which the Company may repurchase up to $100 million of its outstanding common stock (the “New Share Repurchase Program”). Under the New Share Repurchase Program, the Company may repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The New Share Repurchase Program has no time limit and may be suspended or discontinued completely at any time.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized




	EAGLE PHARMACEUTICALS, INC.

DATED: November 8, 2017	By:	/s/ Scott Tarriff
		Scott Tarriff
		Chief Executive Officer and Director (Principal Executive Officer)

DATED: November 8, 2017	By:	/s/ Pete A. Meyers
		Pete A. Meyers
		Chief Financial Officer (Principal Accounting and Financial Officer)

EXHIBIT INDEX



Exhibit Number			Description of Exhibit
3.1⁽¹⁾			Amended and Restated Certificate of Incorporation
3.2⁽¹⁾			Amended and Restated Bylaws
10.1⁽²⁾			Amended and Restated Credit Agreement, by and among the Registrant, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, dated August 8, 2017
10.2⁽³⁾			Product Collaboration and License Agreement, by and between the Registrant and SymBio Pharmaceuticals Limited, effective as of September 19, 2017
31.1			Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to Exhibits 3.2 and 3.4, respectively, to the Registrant’s Registration Statement on Form S-1 (File No. 333-192984), as amended, as filed with the SEC on January 28, 2014.

(2) Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36306), as filed with the SEC on August 9, 2017.

(3) Confidential treatment is being requested as to the certain omitted portions of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, as a request for confidential treatment of this exhibit is being submitted separately to the SEC.