ANI Pharmaceuticals, Inc. (ANIP) on Q4 2022 Results - Earnings Call Transcript

Operator Good morning, everyone, and my name is Ashley, and I'll be your conference operator. At this time, I'd like to welcome everyone to ANI Pharmaceuticals' Fourth Quarter and Full Year 2022 financial results. [Operator Instructions].As a reminder, this conference call is being recorded today, March 9, 2023. It is now my pleasure to turn the floor over to Ms. Judy DiClemente, Investor Relations for ANI Pharmaceuticals. Please go ahead.Judy DiClemente Thank you, Ashley. Welcome to ANI Pharmaceuticals' Q4 2022 Earnings Results Call. This is Judy DiClemente of Insight Communications, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; and Stephen Carey, Chief Financial Officer of ANI. You can also access the webcast of this call through the Investors section of the ANI website at www.anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI Pharmaceuticals management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 9, 2023. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Nikhil Lalwani. Nikhil?Nikhil Lalwani Thank you, Judy. Good morning, everyone, and thank you for joining our call. 2022 was a landmark year for ANI, taking us past critical inflection points for our 2 critical growth drivers. Our Rare Disease business with the successful launch of our foundational asset, Purified Cortrophin Gel and our Generics business to the acquisition and integration of Novitium, a best-in-class generics R&D organization. The significant achievements of 2022 further strengthen ANI to deliver sustainable, competitive and profitable growth. We keep the patient at the center of everything we do and remain deeply committed to providing high-quality medicines to patients in need. I'm proud to report that for the full year 2022, ANI revenues totaled $316.4 million, surpassing the $300 million mark for the first time in the company's history. This was an increase of over $100 million and 46% year-over-year. In the fourth quarter, revenues grew by nearly 55% to $94.2 million, a company record for quarterly revenues. We delivered remarkable growth in adjusted non-GAAP EBITDA from $4.3 million in the first quarter of 2022 to $23.3 million in the fourth quarter. Let me now turn to the 2 strategic imperatives that we need to remain focused on to drive sustainable, profitable and competitive growth in 2023 and beyond. The first imperative is scaling up our Rare Disease business. Our foundational asset, Purified Cortrophin Gel has experienced great momentum through the first year of launch. As you would expect, we made tweaks in our strategy as the launch unfolded. We are pleased to report that the fourth quarter sales totaled $17.6 million, and for our first year of launch, total sales were $41.7 million. Importantly, according to IQVIA, the ACTH class of therapy has gone from consistent year-on-year declines to year-over-year unit growth for the first time since 2019. From June 2022 to January 2023, the ACTH category has seen 8 consecutive months of year-on-year growth. As of March 8, cumulative new patient cases initiated increased to more than 1,120 with more than 510 unique prescribers. We are pleased that we have continued to see growth in the number of new unique prescribers and an increasing number of healthcare providers becoming repeat prescribers. Overall, we have seen prescriber interest in having an alternate treatment in the ACTH category continue to build. Many of our prescribers had previously slowed or discontinued use of the ACTH class and have restarted their use of ACTH therapy after the launch of Purified Cortrophin Gel. Prescriptions continue to be distributed across our targeted specialties, which includes certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis in rheumatoid arthritis and excess urinary protein given the nephrotic syndrome. We have actively participated in the key national and regional medical conferences and have also initiated peer-to-peer programs across these specialties to educate physicians, to increase awareness and understanding of Cortrophin Gel. Our peer-to-peer education programs have been well received with positive early feedback. We have invested and are continuing our efforts with the PBMs and payers across commercial, Medicaid and Medicare to expand market access for Cortrophin for the appropriate patients in need. In addition, we have further strengthened our patient services and reimbursement teams to support access to Cortrophin Gel and reduce the time taken from enrollment to fulfillment. In parallel, we have taken several initiatives to increase the effectiveness of our highly experienced sales force. In 2023, we will augment these efforts with enhanced data to improve prescriber targeting. With the momentum from our launch, we will also commence modest expansion of our sales force to focus on pulmonology. Looking ahead, and as Steve will discuss shortly in more detail, we expect 2023 revenue from Cortrophin Gel to be in the $80 million to a $90 million range, and the Cortrophin SGA increase to be estimated at approximately 10%. We believe that ANI has built a Rare Disease platform successfully encompassing medical affairs, patient support, market access and specialty pharmacy distribution. The success of our foundational asset, Purified Cortrophin Gel has given the company confidence and we are actively exploring assets to acquire or partner on to leverage the platform and scale of the Rare Disease business. Before I move on to our Generics business, I would like to share an important point. During the early days of the launch, we believe it was important to share detailed metrics to give investors insight into the dynamics of and progress of our launch. As the Cortrophin launched has gathered momentum, and investors have gained further confidence, we have decided to pare back sharing competitively sensitive detailed metrics such as number of prescribers and patient cases initiated. Moving now to our second strategic imperative, driving Generic business growth to superior new product launch execution, cost excellence and supply reliability. Sales of our generic pharmaceutical products grew 46% year-on-year. We launched several limited-competition new generics and retained a top 10 ranking in terms of ANDA approvals. In addition, ANI continues to retain the second ranking for competitive generic therapy approvals. This is especially impressive given the scale of our Generics business and a large number of companies that compete in the U.S. Generics market. In 2022, we filed 12 ANDAs and expect to continue investing in generics R&D to support our growth aspirations. We are also making large strides in the area of cost excellence. The consolidation of our manufacturing network is on track. Manufacturing operations speed at the Oakville Ontario site in January 2023 and the relocation of Oakville products to U.S. facilities have been completed. We are in active discussions with potential buyers for the Oakville site. And once fully executed, this operational efficiency is expected to improve GAAP profitability and cash flow by $7 million to $8 million on an annualized basis. Looking ahead, we have augmented our analytical and development -- sorry, our analytical and development facility in Chennai, India. The facility completed a successful FDA audit with the FDA in 2022. And today, over 60 skilled colleagues at the facility contribute materially to ANI's efforts to serving patients in need. Over the years, ANI has built a strong reputation as a reliable supplier to patients and customers. We have invested in maintaining healthy inventory levels, both for materials and finished goods. All of our manufacturing facilities are in the U.S. and our domestic supply chain further enhances our reliability as a supplier. Finally, the strong compliance and audit history across our facilities exemplifies our efforts to deliver high-quality medicines. Most recently, during the fourth quarter, the FDA conducted a routine good manufacturing practices audit at our facility in Baudette, Minnesota. We have implemented all corrective and preventive actions needed and we have already received a favorable establishment inspection report or EIR, classifying that our Baudette facility is Voluntary Action Indicated, VAI. I am proud of the dedicated work of our employees and our Generics business with over 20 million prescriptions filled using ANI medicines. In summary, 2022 was a landmark deal for ANI, taking us past a critical inflection points for the key driver of ANI's growth, scaling up our Rare Disease business. In 2023, we look forward to building on the launch momentum of Cortrophin Gel and acquiring or partnering on other assets that leverage our Rare Disease platform. Steve will now walk through our detailed fourth quarter financial results and discuss our guidance for the coming year. Steve?Stephen Carey Thank you, Nikhil, and good morning to everyone on the call. My comments this morning will be focused on the 3 months ended December 31, 2022 versus the prior year, unless otherwise noted. First off, as Nikhil indicated, 2022 has been a transformational year as we successfully operationalized the Purified Cortrophin Gel launch and integrated the November 2021 acquisition of Novitium into our overall operation. These 2 platforms for growth drove ANI's full year revenue to $316.4 million, marking the first time in ANI's history that our full year revenue has surpassed $300 million. This represents $100 million or 46% growth over the $216.1 million reported in 2021 and establishes a new base as the company continues its growth trajectory. This full year achievement was built upon strong sequential quarterly growth accumulating in $94.2 million of revenues for the 3 months ending December 31, 2022, up $33.3 million or 54.7% as compared to the prior year period, driven by strong gains in both of our operating segments. Revenues from Purified Cortrophin Gel led the way with $17.6 million in revenues in the quarter. Revenues of our Generics established brands and other segments were up $15.7 million or 25.8% over the prior year, driven by gains in our generic pharmaceutical product line, which was up $16.4 million or 39% year-over-year. This increase was principally driven by revenues from multiple 2022 new product launches and partially tempered by an increase in revenues from sales of several legacy ANI generic products. Contract manufacturing revenues were $4 million during the fourth quarter of 2022, up 45.9% from the $2.8 million posted in the prior year period, primarily related to the addition of Novitium contract manufacturing revenues. Royalty and other revenues were $1.9 million in the current year quarter in line with prior year levels. Tempering these growth drivers were net revenues for established brand pharmaceutical products at $12.7 million during the 3 months ended December 31, 2022. This represents a decrease of 13.3% compared to the $14.7 million for the same period in 2022, driven by lower aggregate unit volumes across the portfolio. Operating expenses increased by approximately 9.2% to $92.4 million for the 3 months ended December 31, 2022, from $84.7 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $2.4 million to $36.3 million in the fourth quarter of 2022 compared to $33.9 million in the prior year period, primarily due to increased sales volumes of generic products and sales of Purified Cortrophin Gel. Excluding the impact of acquisition accounting, stock compensation and the effects of our Oakville Ontario plant closure, all of which are detailed in the tables contained in this morning's press release. Cost of sales on a non-GAAP basis as a percentage of total net revenues decreased 7.3 points from 45.7% in the fourth quarter of 2021 to 38.4% in the current year period, primarily as a result of favorable mix from the impact of sales of Purified Cortrophin Gel coupled with the impact of new product launches in our Generic franchise. These favorable impacts were partially offset by lower sales of established brand products in the period. Research and development expenses were $5.2 million in the fourth quarter of 2022, an increase of $2.1 million from prior year, primarily due to expenses related to an increased level of generic research and development activities during the current year period. Selling, general and administrative expenses increased by 8.1% to $33.2 million in the fourth quarter of 2022 compared to $30.7 million in the prior year quarter, primarily due to a $3.9 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, a full quarter's worth of Novitium headcount and activities as compared to a partial quarter in the prior year and increased infrastructure to support the growth in our business. These effects were partially offset by a $4.3 million decrease in transaction expenses related to the Novitium acquisition. Depreciation and amortization expense was $14.5 million for the 3 months ended December 31, 2022, compared to $13.7 million for the same period in 2021, an increase of $0.8 million, primarily due to the amortization of intangible assets acquired in the Novitium acquisition. We recognized $1.6 million of restructuring expense in the fourth quarter of 2022 associated with the closure of our Oakville, Ontario facility. Costs included $0.3 million in termination benefits and $1.1 million in fixed asset accelerated depreciation. No restructuring activities were recognized in the prior year period. We have excluded both the onetime charges resulting from this action as well as the portions of the Canada results that are expected to be nonrecurring post closure from our non-GAAP financial measures as detailed in the tables in this morning's press release. During the quarter ended December 31, 2022, we also recognized the noncash fair value adjustment of $1.6 million related to the contingent consideration recorded in conjunction with Novitium purchase accounting. Our $0.28 GAAP net loss per share for the quarter reflects significant amortization and purchase accounting-related charges from the Novitium acquisition coupled with the sales and marketing expense behind our initial commercial launch of Cortrophin and Oakville-related restructuring activities. On an adjusted non-GAAP basis, we had diluted earnings per share of $0.76 for the quarter compared to $0.06 in the prior year period. Adjusted non-GAAP EBITDA for the fourth quarter of 2022 of $23.3 million, more than tripled as compared to the $7.2 million posted in the fourth quarter of 2021. And on a sequential basis, was up $4.9 million from $18.4 million in the third quarter of this year. Also, please note, as disclosed in the footnote to Tables 3 and 4 to this morning's press release, beginning in the fourth quarter of 2022, ANI no longer excludes expense for in-process research and development, Cortrophin prelaunch charges and Cortrophin sales and marketing expenses from its non-GAAP results. Historically, the company excluded these charges. These changes have been made to align with views expressed by the U.S. Securities and Exchange Commission. Prior periods have been recast to reflect these changes. From a balance sheet perspective, we exited the year with $48.2 million in unrestricted cash and cash equivalents and $297 million in face value of outstanding debt which is due in November of 2027. As expected, full year 2022 was a heavy cash utilization year with $31.2 million of cash used in operations as we invested behind the Rare Disease platform and had significant build of working capital due to rapidly accelerating sequential net revenues. Finally, with this morning's press release, we are instituting 2023 guidance. Total company net revenue between $360 million and $385 million, representing approximately at least 14% to 22% growth as compared to $316.4 million recognized in 2022. Cortrophin specific revenue guidance of between $80 million to $90 million, representing 92% to 116% growth as compared to $41.7 million recognized in 2022. Total company non-GAAP gross margin between 59.5% and 61%. Total company adjusted non-GAAP EBITDA between $78 million and $88 million and adjusted non-GAAP diluted earnings per share between $2.09 and $2.59. In addition, we currently anticipate between 16.8 million and 17.1 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. We will now open up the call to questions. Operator, please announce the instruction.Question-and-Answer Session Operator [Operator Instructions]. And we will take our first question from Elliot Wilbur with Raymond James.Elliot Wilbur First question for Nikhil and Steve as well, I guess. Just thinking about expectations with respect to the base business, generics legacy brands, backing out the numbers, it looks like you're expecting growth in mid-to-high single digits. And just wondering what the assumptions are as far as new approvals, new launches, should we be expecting a similar pattern to what we've seen over the past 12 months where we kind of see a steady cadence of smaller products coming out of the legacy Novitium pipeline? And is there anything that you could offer up in terms of visibility around any date certain or larger launch opportunities that might enhance confidence in your modest growth expectations for that component of the business?Nikhil Lalwani Sure. Thank you, Elliot, and good morning. Look, I think the 2023 launch cadence will be similar to 2022, as you used the words -- a steady stream of launches. I think that over time, the scale of those steady stream of launches will increase. But to the other part of your question, there isn't a date certain or a large launch to sort of point to -- there are some sort of relatively larger launches, but nothing that stands out as a substantially larger than everything else and in terms of concentration of new product launch revenues, we currently don't see that. But that's not factored into as an assumption into our guidance for the base business or our overhead and our overall guidance.Stephen Carey Yes. The other thing I would add, Nikhil and Elliot, as we look and unpack the different elements that roll up into that segment, I would say we're expecting the growth in that segment to be led by the Generic platform and declined year-over-year in the established brands side of the business and the contract manufacturing side of the business. So there's a little bit of mix rolling up into that segment observation that you made.Elliot Wilbur Okay. And maybe just a couple of quick financial questions for your sales. Steve, just anything specifically you can or want to say about the kind of -- it looks like the implied step-up in SG&A and R&D spend, so most of that is targeted to the expansion of Cortrophin call activities, but anything else that you can say there in terms of more specifics would be helpful. And then you referenced working capital investment over the course of 2022, looking at your adjusted net income expectations based on some of the outlook items that you've offered, I mean it looks like you guys are looking for around $40 million to $45 million in adjusted net income. Anything you could say with respect to anticipated cash conversion ratio there? I'm guessing maybe you would expect to actually overperform more than 100% cash conversion, but I just wanted to bounce that off you and see if there's anything you can give us in terms of expected cash conversion, operating cash flow generation in 2023?Stephen Carey Sure. Yes, sure thing. Yes. And while we're not offering specific SG&A and R&D guidance this morning, obviously, the implication and the reality is that both of those line items will be growing year-over-year. On the R&D side, it will be continued investment and an increased investment in the R&D platform, principally on the Generic side. Obviously, the company has made a very significant investment in the Novitium platform, one that we're extremely happy with. And you can see the clear impact of the performance of the Novitium platform in 2022. And so, right, we're focused on continuing to build and expand upon that platform.And then on the SG&A side, right, a touch driven by continued investment in the Rare Disease platform and year 2 of the Purified Cortrophin Gel launch as Nikhil had indicated in his prepared statements, we see that direct investment in Rare Disease, SG&A around a 10% increase year-over-year. And then the other aspects of SG&A, right, or just as the company is growing, right, at such a fast clip, obviously, the support structure, the supporting functions naturally grow around that growth in the business in order to adequately support the company and its objectives. And so that's something that's been happening throughout the course of 2022. And so there's -- you kind of start off the year with an annualization effect of bills and decisions that were made in 2022 and then a touch more layered in as we envision continued growth across our 2 growth platforms. On the topic of cash, yes, as we look forward to 2023, we definitely envision getting back to positive cash flows. The cash flows in 2022, were expected to be cash-use year as we stood up the Rare Disease business, right? If you unpack the performance on a quarterly basis in -- again, in 2022, right, as you have the rare disease and machinery up and running essentially from day 1, January 1, 2022, yet you have all sequential revenues, right, going from $1 million in the first quarter to over $17 million in the fourth. So that's a very significant effect in terms of cash use and then as Cortrophin reaches breakeven. And as we look forward to 2023, we very much anticipate returning to favorable cash flows on a total company basis. I'm not going to specify versus your assumed $45 million of operational. But I would tell you, we do expect reasonably strong cash flows in 2023 and then building off of that base.Elliot Wilbur Okay. And just 1 last question around Cortrophin. Nikhil, is the expansion of the sales force specifically targeted towards the pulmonologist community or what also enable you to enhance the frequency or expand the breadth of your current calling pattern? And historically, I seem to recall the pulmonology indication accounting for roughly 15% to 20% of the dollar value of the Acthar franchise. And I just wanted to see if that's sort of consistent with your read into that particular segment of the market as well.Nikhil Lalwani Yes. Thanks, Elliot. I think on your point on sales expansion, look, we're trying to find a balance between sharing information to assist the investment community while not giving away competitively sensitive data. So with that understanding, pulmonology is a critical part of the expansion. However, we may go beyond that, too, right? But I think in terms of sharing, I think pulmonology is the area that we'd like to share. And in terms of how much of Acthar sales it is, look, it's material enough for us to -- as a sector or sort of indication for us to say, "Hey, we'll have a dedicated sales force for it." And in terms of expanding and to reach those patients.Operator We'll take our next question from Vamil Divan with Guggenheim Securities.Vamil Divan Great. So maybe just a couple more following up on the Cortrophin launch. And I appreciate your comments on not wanting to share too much competitive information. But a couple of questions just following up on what you did say. Can you maybe just comment a little bit on what you're seeing sort of in the field if physicians are sort of deciding between Cortrophin Gel and competing options, nice to see the growth return to that market, but in terms of differentiation, what is sort of driving the decision to use Cortrophin? And then just the second one, again, as much as you're willing to share kind of baked in your guidance or any comments on what you're assuming around gross to net would be helpful just for us if you want to comment.Nikhil Lalwani Good morning, Vamil, and welcome to your first ANI earnings call. Two questions on the gross to net, we are again, back to the competitive point, we're not sharing that information at this time. And then in terms of dynamic with prescribers, look, we are continuing to see growth both in the number of unique prescribers or new unique prescribers as well as healthcare providers becoming repeat prescribers. They use it, they see the benefit and then they use it. And then the other thing to share is that we've seen the prescriber interest in having an alternate treatment in the ACTH category continue to build. And many of our prescribers had previously slowed or discontinued the use of the ACTH class prior to our launch. And then once we've launched and as we created awareness around Cortrophin Gel and the ACTH class, they've restarted their use of ACTH therapy. Of course, this is -- all of this is for the appropriate patients in need. And when you think of that, right, and this is why the point on the class and the growth in the class 8 months according to IQVIA year-on-year growth on a monthly basis -- sorry, monthly growth from a year-on-year basis. I think as you think of that, I think the important point to bear in mind is that if you look a few years ago, the number of patients that were benefiting from ACTH therapy was significantly higher than where we are today. And so that tells you that, again, as we're seeing this class growth that, that is -- that the prescriber interest in ACTH class and more appropriate patients continues to build.Operator And we'll take our next question from Greg Fraser with Truist Securities.Gregory Fraser On Cortrophin, can you comment on the competitive environment? I'm not sure if I missed that. And just what you're seeing from the incumbent in terms of strategies to defend this business?Nikhil Lalwani Yes. Let's cut to the chase, Greg. Look, we're again trying to find balance between sharing information that's helpful to the investment community, while not giving away competitively sensitive data. We know that our competitors are listening into this call. And I think, look, from the way we see it, and obviously, they did comment on this publicly, I think day before yesterday and then also a week ago that they're seeing stabilization in the demand and growth in the overall class and that they believe, I think -- and I think we're all about trying to increase the number of patients that can -- of appropriate patients that can benefit from this therapy, right, or -- and I think that's it. I think -- yes, that's what I feel comfortable sharing at this time.Gregory Fraser Got it. This may fall under the same competitive sensitive category. But can you talk about the number of thoughts that you've been calling on and how that number -- have a number of prescribers of 510 compared with the overall [indiscernible].Nikhil Lalwani Yes. Definitely competitively sensitive information. So we'll be steering clear of that. Thank you for understanding, Vamil.Gregory Fraser Great. Understood. Okay. What about just the new patient starts, are those -- have those been ramping similarly with the case initiations, I guess -- that are payer approvals coming through?Nikhil Lalwani Right. Yes. I think that the new patient starts are ramping. And I think one of the things that we will see in 2023 is that the new patient starts in Q4 will continue to -- as -- depending upon what kind of indications they are on -- the refill vials will keep the sort of coming from those. So our team obviously is focused on increasing the awareness and understanding of Cortrophin Gel. And there are, as you were pointing out, there's a number of factors that drive from the number of cases initiated to cases that meet the prior authorization criteria and are approved by the insurance plans and the time to dispense of the first vial and then there's also a variation in terms of the indication mix, right? So how many MS patients versus RA patients, versus lupus patients, versus nephrotic syndrome patients and the number of vials used for each indication varies and also then patients getting vials to our patients assistance program.Gregory Fraser One other -- one more question. When do you expect the operational efficiencies from the consolidation of the manufacturing network to fully materialize?Nikhil Lalwani Sorry, I missed that question. Sorry, go ahead.Stephen Carey I can grab that one. Greg, thanks for the insightful questions. Yes, the full GAAP impact and most importantly, the cash flow impact from consolidating manufacturing and closing of the Oakville facility, we'll start to accrue into the results in 2023. Our operational plans to wind down the facility have tracked very much according to plan, and we are in the final days of -- manufacturing completed early this quarter, and we're in the process of moving and selling off certain fixed assets, et cetera. So we're in the final days of the wind down plan as we speak. So that cash flow impact will start to accrue in 2023 and certainly GAAP results on the P&L, we'll accrue in. As you know, Greg, on the non-GAAP results, in the non-GAAP EBITDA and non-GAAP EPS, we've been adding back certain portions of those savings, the impact of nonrecurring costs on the CDMO side in Canada, we've been adding those back since the second quarter of 2022. So a portion of that impact in effect is already reflected in the non-GAAP results.Nikhil Lalwani Just before we move on, Greg, I think just coming back to your question on competitive dynamic -- just to be -- again, to try and be helpful to the investment community. I would point you to the fact that from -- according to IQVIA, 8 months consecutively, we've seen year-on-year growth in the class. So that's 1 data point. You also see the relative market share. That's another bit of it's in the public domain and then the short ones claims -- affecting the claims, and that gives you another data point. And finally, obviously, you see the published price. I think these are 3 or 4 data points that are available in the public domain that could be helpful to point to the competitive dynamic. And again, the overall as we see it, right, that the number of patients that were on ACTH therapy 3 to 4 years ago was much higher than where they are today. And we're increasing awareness and understanding of Cortrophin Gel to find the appropriate patients in need.Operator And we'll take our next question from Brandon Folkes with Cantor Fitzgerald.Brandon Folkes Congratulations on all the progress in 2022. I do just want to come back to the cash flow conversion and generation. So you reported adjusted EBITDA, I think, of $56 million operating cash burn, I think I heard you say, Steve, of $31 million, can you just elaborate on the moving pieces regarding cash flow generation in 2023? I didn't hear you're talking about getting better cash flow generation and strong cash flow generation at that. But just maybe help us bridge that $87 million gap between adjusted EBITDA in 2022 and operating cash flow. Is it really just interest payments and working capital build? And then why should we not expect to continue to see a working capital build in '23 albeit perhaps lower in 2022? But just given the growth trajectory, I wondered your '23 guidance and then maybe what we are expecting for 2024. I know that's a lot in there, but maybe just to tack on top of that then how is your flexibility to bring in additional assets as you finance this organic growth and service the debt?Stephen Carey Yes. Thanks, Brandon. Yes, I think, like, the biggest part of the bridge that you described is the change in working capital, right? And I think you have to understand that there's been extreme acceleration in sequential performance, both quarterly right? If you look at the quarters, obviously, out in the public domain, right, the company posted $94 million in sales versus $64.5 million in the first quarter of this year. And when you look at that year-over-year, as we said on the call, fourth quarter revenues are up $33 million year-over-year. And so at the December 31st balance sheet, right, a large portion of that sales gain year-over-year is sitting in AR, right? On top of that, we -- on the inventory side of working capital, right, we had a tremendous expansion of the business across both lines, right? So on the Generic side, obviously, we've launched over 20 products in 2022, right, so there's working capital builds on inventory to support those product launches and obviously, the effect on AR as we discussed. And then on the Purified Cortrophin Gel side, right, that's a product where supply chain is extremely important and the production of inventories there kind of happens more periodically, right, given the specialized nature of that product. So you can have lumpiness in the inventory purchases on the Cortrophin side. So those impacts are very real and they're very significant when you look at that quarterly progression. And as you could imagine, right, if you were to unpack the fourth quarter, especially for those growth platforms, right, there tends to be a sequential growth within the month as well.So -- well, turning to -- and then on total company cash flows, right, obviously, the second biggest bill, if you will, in 2022 is on debt financing and servicing the debt finance bill. So that cost just shy of $24 million on interest and then $3 million of debt principal pay down. So those are the biggest impacts of cash flow in 2022. As we look forward to 2023, you're correct, we do expect to have continued sequential build, I think, right, but the impacts of the overall growth in the business in 2022 will start to manifest more in the cash flow and in the cash balance. And so we do expect that, right, as absolute growth percentages, moderated touch, right? We do expect that working capital component to be less severe than it was this year.Nikhil Lalwani Just one other thing to add, Brandon, is that we also have the sale of the Oakville facility as a good positive cash flow item to think about.Operator And we'll take our next question from Oren Livnat with H.C. Wainwright.Oren Livnat I have a couple. On Cortrophin, I understand you have to keep things close to the vest competitively here. But just in general, on approval of coverage trends, are those time lines shrinking materially? And you discussed you're continuing to work to improve coverage and access. So how would you characterize your, I guess, without specifics, but just your relative positioning to Acthar at launch and now and should we expect any material changes in Q1, whether normal seasonal headwinds from resetting of plans in prior offs, et cetera, or actual potential tailwinds with new coverage wins kicking in? And I have a follow-up.Nikhil Lalwani Yes. Thank you for your questions. Yes. Look, again, the specifics on market access and rather coverage positions is fairly competitively sensitive information. I think that, as I mentioned during my prepared remarks, that we're continuing to work to increase and improve the market access for patients in need, both with coverage decisions as well as what's helping to our reimbursement team just helping to reduce the time from enrollment to fulfillment. I should probably steer clear of giving any further specifics beyond that because the last time I checked [indiscernible] were actually listening into my call. So.Oren Livnat But in terms of seasonality in Q1, I mean, we normally -- especially in rare expensive drugs, we expect a headwind in Q1. Should we just make the standard assumption that, that's the case for your product like most or in theory, as you're entering your first full year, are you hoping to have a new win?Nikhil Lalwani So I think you're exactly right that there is a dynamic that's typical for rare disease launches between Q4 and Q1, such as patients searching insurance plans and the impact of that. And I think that ANI's rare disease products will sort of follow suit on that.Oren Livnat Perfect. And you did mention bolstering the pulmonology support. And I think it's pretty vague, but maybe other areas, I'm assuming you're referring to whatever differentiation you have indication-wise versus Acthar, which I guess is not competitive information. It's in the label. So maybe you could talk about it. How material do you view the opportunity in any differentiated indications you have versus Acthar?Nikhil Lalwani Yes. We're not -- you're right. So we -- it is in the label, and we do have differentiated indications versus Acthar, but we're not sharing anything at this time. And I think the second part on pulmonology -- sorry, the other indications, I think, yes, we point of view in the direction of the modest sales force expansion in the area of pulmonology and I think that, that's appropriate to share.Oren Livnat Okay. And then just a couple of financial ones. There are more operating leverage in 2023. What are the biggest drivers there in terms of the ranges, bull and bear case scenarios margin-wise? Is it just how much you choose to invest on the OpEx side? Or is there some material variability in the gross margins of the underlying business units? Actually, I think I missed in your remarks, did you give company gross margin guidance there? And on Generics, specifically, just directionally, given you're launching -- expect to launch competitive generic therapies, is it possible gross margins overall in the Generics business can increase in 2023? Or is that -- would that be too aggressive an assumption? And should we assume that they're flat at best?Stephen Carey Yes, Oren. So yes, we did comment on total company gross margin profile and we tagged that at 59.5% to 61%, and that would be on a non-GAAP basis. And as you think about the different puts and takes in the ranges in the guidance, certainly, one of them is just how the sales mix does play out. As we've talked about in the past, right, Purified Cortrophin Gel is a favorable input as it grows to our overall company gross margin profile. And -- however, there is a touch of headwind year-over-year as I had cited in Elliot's question at the top of the Q&A, in our kind of other revenue categories, right, the other -- and the one that I didn't say on Elliot's call, which is to remain is in the area of royalties. So would you expect royalty income to decline year-over-year. And obviously, royalty income has 100% gross margin profile. And then as you know, right, our established brands business, which has a high brand margin profile rate tends to be a declining asset year-over-year without business development impact on it. And so there's puts and takes, right, in that gross margin profile guidance. And then the other aspects, right, are just the implied ranges. Again, we haven't given SG&A and R&D guidance, right, but the implied ranges of that kind of total OpEx. And those are in relatively tight ranges, but the decision there. And as we've said, right, we're very focused on continuing to invest behind the 2 growth platforms and this is our point of view at a moment in time, right? Obviously, as the year develops, and we get more experience under our belt with the performance and the continued trajectory, obviously, we'll update as appropriate.Oren Livnat And can you comment on the directionality of generic gross margins or no?Stephen Carey Yes. Right. Yes, your question. So I would say gross margins for the Generic business can absolutely expand. And the first thing that I would point to you there, right, is just the overall aggregate age of the portfolio, right, as you know, right, gross margin profiles and generics which tend to be best at the launch date. And then as competitive pressures kick in as time goes on, you would have margin compression and so as we are in an era of multiple generic launches off of the strength of the R&D platform, that lowers the aggregate age of our portfolio and is a positive contributor to the generic gross margin profile.Nikhil Lalwani So just to clarify, or build on what Steve said, he says that it can expand, but it for the -- we haven't given specific guidance on the mix, right, was giving you what the -- for the mix of the 3 years, right? And he was telling you about the moving parts.Oren Livnat Yes. No promises in Generics. Building on -- everyone's question is on cash. Like I'm not an accountant, so I'm sorry, this is a dumb question. But just when we talk about besides the investments in inventory and other working capital investments, when we just talk about accounts receivable and how that's grown over the year, just to clarify, is that really just a function of time and growth of revenue, net payment terms and obviously a rapidly growing top line? Or is there potentially any difference in the regular collection cycle with the new orphan business versus the legacy generics? Is there something unique about accounts receivable collections on the orphan side?Stephen Carey Yes, sure. So I'll answer -- the first part is in 2022, the utilization of cash and what's sitting in AR is largely driven by just the normal cycle and the significantly accelerating sequential growth, again, even within the months, right, in terms of looking forward and as Purified Cortrophin Gel becomes a bigger overall mix of our business, the -- I'll say, generally speaking, right, the contractual relationships and contractual terms for that type of branded product, right, are more favorable than the terms that we would expect in the Generic business. So that should be another underlying positive factor as Purified Cortrophin Gel grows as an overall percentage of our business.Operator And we'll take a follow-up question from Elliot Wilbur with Raymond James.Elliot Wilbur Just going back to Cortrophin. As we think about modeling the trajectory of the product and the various treatment curves and persistent trends within your 3 primary indications, any particular area where you're seeing overperformance perhaps versus the historical ACTH usage pattern? I guess some of the early data suggest that relative usage in nephrotic syndrome is much higher than what we've seen with Acthar. So I don't know if that's just a function of not enough data points or if, in fact, that's something that you're seeing as well. And then a bigger-picture question. As we start to see the ACTH market recover in terms of unit volumes, anything you could say in terms of sort of the patient dynamics there? I understand most of these patients would be sort of new to therapy, meaning they haven't been on either control for Acthar probably for 12 months. But any perspective you can offer at least at this early stage in terms of patients who may actually be treatment-naive or not previously on ACTH therapies in terms of the mix? And last question, I'm sure I know the response already, but Acthar labeling is differentiated because it has the infantile spasm indication, anything you can say about your plans in that area as well?Nikhil Lalwani So thanks, Elliot. Insightful questions as always. Look, your question on are we seeing sort of favorable dynamics on 1 patient or 1 indication versus another versus what Acthar has historically had, we'll probably need to steer clear of that, because that points in a direction of focus that could be valuable for -- so it's competitively sensitive. So that's one. I think on patient dynamics, I think what we can share is there are prescribers who were writing or using the ACTH class, and they had either stopped or reduced their writing considerably and their interest as we have driven sort of greater understanding around Cortrophin Gel, awareness and understanding of Cortrophin Gel, we've seen their interest continue to build, and that's -- and you can -- sort of what I can share is there are prescribers that are writing their first prescription of Cortrophin Gel and there are prescribers that are writing multiple prescriptions of Cortrophin Gel. And I guess what you can see from that is the patients that they put on Cortrophin Gel potentially you're seeing, right, so I think that they see the impact of that and they make the decision to decide which are the appropriate patients to continue to put on Cortrophin Gel. I think that's what I can share.And then the last one, again, look, these are all dynamics that we are -- just to be clear, these are all dynamics that we believe are favorable and therefore, you see that our guidance for 2023 is 92% to 116% higher. And that's why you see -- sorry, 92% is 116% higher than 2022. And that's why you see that the ACTH class has grown month-on-month, consecutively 8 months in a row. And then your third question on the IS indication, competitively sensitive information. So I just want to say before we move on, I just want to thank all of you for your patience and understanding as we -- again, we're all -- we're trying to find that balance between giving the investment community as much information with sharing in competitively sensitive information in a 2-player market, right? So.Operator There are no further questions at this time. I'll turn the call back over to Nikhil Lalwani for our closing remarks.Nikhil Lalwani Thank you, Ashley, and thank you, everyone, for joining our call this morning. ANI is well positioned to deliver sustainable growth, and we look forward to updating you on the continued progress. We appreciate your time and interest in ANI, and thank you.Stephen Carey Thank you.Operator Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
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ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) Earnings Report Highlights

  • ANI Pharmaceuticals disclosed its earnings per share (EPS) of $0.937, slightly below the anticipated $0.98.
  • ANI Pharmaceuticals achieved record quarterly net revenue of $137.4 million, net income of $17.8 million, and a GAAP diluted EPS of $0.82.
  • ANI Pharmaceuticals' Rare Disease business generated net revenues of $36.9 million, marking a year-over-year growth of 126.2%.

On Friday, May 10, 2024, ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) disclosed its earnings before the market opened, revealing an earnings per share (EPS) of $0.937, which was slightly below the anticipated EPS of $0.98. Despite this, the company's revenue for the period was $137.43 million, exceeding the expected revenue of $125.52 million. This performance indicates a significant year-over-year revenue increase of 28.7%, showcasing ANI Pharmaceuticals' robust growth and its ability to surpass Wall Street expectations.

ANI Pharmaceuticals, headquartered in Baudette, Minnesota, operates in the pharmaceutical industry, focusing on developing, manufacturing, and marketing branded and generic prescription pharmaceuticals. The company's financial achievements, as discussed during its first quarter 2024 earnings conference call, were highlighted by key participants, including President and CEO Nikhil Lalwani and Senior Vice President, Finance, and CFO Stephen Carey. The call, indicating strong interest from the investment community, was attended by several analysts from reputable firms, reflecting the company's solid standing and future prospects in the pharmaceutical sector.

The company's record quarterly net revenue of $137.4 million and a net income for common shareholders of $17.8 million, with GAAP diluted earnings per share at $0.82, underscore its financial health. Additionally, ANI Pharmaceuticals achieved a record adjusted non-GAAP EBITDA of $37.6 million and adjusted non-GAAP diluted earnings per share of $1.21. These figures not only demonstrate the company's financial strength but also its operational efficiency and the successful execution of its business strategy.

A key highlight from the quarter was the performance of ANI Pharmaceuticals' Rare Disease business, which generated net revenues of $36.9 million, marking a year-over-year growth of 126.2%.This impressive growth contributes significantly to the company's overall financial success and underscores the potential of its specialized product lines. Furthermore, the company has reiterated its guidance for 2024, projecting net revenues to be between $520 million and $542 million, with adjusted non-GAAP EBITDA expected to range from $135 million to $145 million.

ANI Pharmaceuticals' stock price also reflected its strong financial performance, closing at $68.05, a 3.29% rise. The stock's fluctuation between a low of $64.05 and a high of $70 on the trading day, along with its wide range over the past year, highlights the market's response to the company's financial health and growth prospects. With a market capitalization of approximately $1.43 billion and a trading volume of 302,509 shares, ANIP stands as a significant player in the pharmaceutical industry, poised for continued growth and success.