ANI Pharmaceuticals, Inc.

Good morning, everyone, and welcome to ANI's second quarter 2019 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. If you would like to withdraw your question, please press the pound key on your touchtone phone. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Mr. Arthur Prisbel. Please go ahead.

Good morning, everyone. Welcome to ANI's earnings conference call for the second quarter 2019. My name is Art Prisbel. I'm the CEO. And joining me today is Stephen Carey, our chief financial officer. Before we begin, I want to refer everyone to the forward-looking statements language in this morning's press release and ask each of you to review it carefully as important context for this conference call. Discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today. Today, ANI reported second quarter 2019 results. For the second quarter, we reported net revenues of $54.4 million, an increase of 15%, and record adjusted non-GAAP EBITDA of $23.7 million, an increase of 24% over the prior year period. Adjusted non-GAAP EBITDA was 44% of net revenues. First quarter generic product revenues increased by 20% to $36.3 million as compared to the prior year period, a direct result of several generic product launches over the last several months. During the second quarter, we received FDA approval for our vancomycin oral solution product, and we anticipate a September launch. This product will enter a vancomycin market that we believe exceeds $450 million in the United States, not including a substantial market for compounded product. Our excitement for the launch is based on the strength of our uniquely convenient single bottle presentation, available in three sizes, our belief that this dosage form can take substantial share of a molecule that is chronically on the drug shortage list, and an ongoing industry-wide shift from the use of compounded product when an RX alternative is available. Finally, we will leverage Our existing virtual marketing infrastructure to drive product awareness at launch. Throughout the quarter, we continued our process validation effort for cortropin gel. As described in the press release today, we intend to complete both raw material and finished drug product process validation by the end of August. After the required 180-day stability timeline is complete for all three batches of raw material and drug product, We intend to file the supplemental NDA for Cortropin Gel in March 2020. After the filing, we expect to be assigned a four-month PDUFA date as per PDUFA guidelines for supplemental new drug applications. In today's press release, we updated our 2019 revenue guidance to be in the range of $220 to $226 million, which represents 9% to 12% growth over 2018. We reduced our revenue guidance due to the competitive landscape for methylphenidate extended release tablets. We reaffirmed our guidance for adjusted non-gap EBITDA and diluted earnings per share due to continued favorable product mix and gross profit trends. We currently have over $100 million available to continue to acquire assets that represent both immediate and future revenue and cash flow opportunities for ANI. During the second quarter, we signed one new distribution agreement and acquired seven development stage generic products that expanded our pipeline of injectable drugs to six. Expanding our injectable drug pipeline is an important objective for us, and we intend to continue to invest in that business platform. A&I has grown its revenue and non-debt EBITDA annually since becoming a public company in 2013. We expect that trend to continue in 2019. In an increasingly competitive generic industry, we remain well-positioned for future growth. Our balance sheet is not overly burdened by debt, we are levered less than two times, and our cash flow from operations remains robust. We are not party to the two macro issues that plague the generic industry, the Department of Justice price collusion lawsuit and any of the opioid lawsuits and their potential for adverse related cash settlements. We have a near-term opportunity for a transformational blockbuster drug, Cortropin gel, that upon FDA approval and launch can significantly benefit ANI shareholders. ANI's launch of Cortropin Gel will break a long-standing monopoly since we believe the drug cannot be genericized. Upon launch, our anticipated market price for Cortropin Gel is intended to save patients, providers, and the United States healthcare system hundreds of millions of dollars. We remain committed to that effort. I will now turn the conference call over to our CFO, Steve Carey, who will provide you with more details on our financial results.

Thank you, Art. Good morning to everyone on the line, and thank you for joining the call to discuss ANI's second quarter 2019 financial results. ANI continued to post strong results in the second quarter of 2019, posting 15% year-over-year net revenue growth. and record quarterly adjusted net gap EBITDA of $23.7 million. Corresponding adjusted non-gap EPS was a record $1.44 per diluted share. At $54.4 million, net revenue for the three months ended June 30th, 2019 was up $7.1 million or 15% versus prior year. Driven by gains in our generic pharmaceutical products and contract manufacturing categories. Revenues of our generic pharmaceutical products increased 20% from prior year to $36.3 million, driven by azetamide simvastatin, EES, candesartan, and other recently launched products, as well as incremental unit sales of vancomycins. These gains were tempered by lower sales of EEMT, diphenoxylate atropine, and nilutamide. Branded pharmaceutical revenues were $14 million in the quarter, an increase of 33%, primarily due to sales of Arimidex and Casodex, which were launched in the A&I label in July of 2018, and Atacand and Atacand HCT, which were launched in the A&I label in October of 2018. In addition, we achieved sales gains in Inderol LA. Gains in these products were tempered by lower unit sales of Bankison and Innopran XL. Revenues for our contract manufacturing services more than doubled to 3.7 million, principally due to the impact of A&I Pharmaceuticals Canada which was acquired in August of 2018. Royalty and other of 419,000 in the quarter declined 4.4 million driven by the aforementioned launch of Atacand, Atacand HCT, Arimidex, and Casodex in the A&I label in the second half of 2018. Revenue from these products was initially recorded as royalty income however is now included in the net sales of Branded Pharmaceuticals product line. This decline was somewhat tempered by product development and laboratory services revenue from A&I Canada. Cost of sales in the current period was $15.6 million or 29% of net revenues as compared to $16.6 million or 35% of net revenues in the prior year period. The approximate six-point year-over-year improvement in gross margin is principally due to lower royalty expense resulting from a royalty buyout completed in the first quarter of 2019, as well as favorable mix. Selling, general, and administrative expenses were $14.2 million as compared to $10 million in the prior year. driven by costs related to our new ANI Canada subsidiary, increased US space headcount and pharmacovigilance costs, higher GDUFA and PDUFA user fees paid to the US FDA, higher legal fees, and increased sales and marketing related costs. Research and development costs totaled $5.8 million in the quarter and include a $2.3 million in-process R&D charge recorded in conjunction with our previously announced acquisition of seven development stage generic products from Coeptis Pharmaceuticals. This charge was added back for purpose of our non-GAAP EBITDA and ETS calculation. Organic R&D spend continues to be driven by investment behind our Cortrophin Recommercialization Program and work related to our underlying generic pipeline. As it relates to taxes, during the quarter we recognized the net $653,000 tax benefit driven by the recognition of tax assets that were previously reserved for purpose of GAAP accounting upon implementation of our ANI Canada Transfer Pricing Agreement. This one-time benefit was excluded for the purpose of calculating adjusted non-GAAP diluted earnings per share for the quarter. Our consolidated effective tax rate, exclusive of discrete items, approximates 21 to 22 percent. On a GAAP basis, fully diluted earnings per share more than doubled to 53 cents per share as compared to 23 cents per share in the year-ago period. This is the first quarterly period in which the calculation of our GAAP EPS includes the dilutive effect of our convertible debt. Most importantly, from an economic perspective, our shareholders are protected from equity dilution up to a share price of $96.21 due to the hedging program that the company put in place in 2014. Gap accounting, however, requires that our diluted weighted average shares outstanding include the theoretical dilution that would occur at share prices above the $69.48 conversion price on the face of our convertible debt. The inclusion of these theoretical shares negatively impacted gap EPS by one cent in the quarter. Our adjusted non-gap diluted earnings per share excludes these impacts and was $1.44 per diluted share, up 31 cents or 27% from prior year. On a year-to-date basis, we have generated $107.2 million of net revenues, $46 million of adjusted non-GAAP EBITDA and $2.75 of adjusted non-GAAP diluted earnings per share. representing year-over-year gains of 14%, 13%, and 12% respectively. From a balance sheet perspective, we had unrestricted cash and cash equivalents of $40.6 million as of June 30, 2019. This balance is reflective of $19 million of year-to-date cash flow from operations, and his net of $20.8 million of cash utilized for business development activities during the first half of the year. Total net debt as of the balance sheet date approximated $149 million, representing under 1.7 times net leverage on a trailing 12-month basis and approximately 1.5 turns when utilizing the midpoint of our full year 2019 guidance. Please recall that as previously announced and discussed, we have fully committed financing in place to refinance the upcoming December 1st maturity of our $118,750,000 of convertible debt in the form of our $265 million senior secured credit facility. In addition, the $75 million revolver portion of this facility remains undrawn and coupled with our existing cash and cash flow from operations continues to provide us with flexibility in pursuing further business development transactions. In summary, we are pleased with our second quarter and first half results, which reflect continued execution by the A&I team of our business plan for 2019. In the second half of the year, we look forward to a successful vancomycin oral solution launch and continued success in meeting stated goals and milestones for our cortrophin re-commercialization program. We have a healthy balance sheet, strong cash flow, access to fully committed capital, which allows us flexibility as we continue to search for business development opportunities. As always, we look forward to continuing to drive long-term value for our stakeholders. With this, I will turn the call back to our President and CEO, Art Priswell.