ANI Pharmaceuticals, Inc.

Good day, everyone, and welcome to today's ANI Pharmaceuticals Incorporated second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question by pressing star and one on your phone. You may withdraw yourself from the queue by pressing the pound key. Please note, this call may be recorded. I'll be standing by should you need any assistance. It is my pleasure to turn the program over to Lisa Wilson.

Thank you, Leo. Welcome to ANI Pharmaceuticals Q2 2021 Earnings Results Call. This is Lisa Wilson, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer, and Steve Carey, Chief Financial Officer of ANI. You can also access the webcast of this call through the investor section of the ANI website at anifarmaceuticals.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 A&I 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, anifarmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 6, 2021. Since then, ANI may have made announcements related to the topics discussed So please reference the company's most recent press releases in SEC violence. And with that, I'll turn the call over to Nikhil Lalwani. Thank you, Lisa.

Good morning, everyone, and thank you for joining our call. Before I begin, I'd like to acknowledge the challenging times we're facing as the pandemic lingers on and continues to impact lives around our country and the world over. We very much appreciate the continued efforts of our employees, our partners, suppliers, and customers as we focus on ensuring patients in need get access to our medications. I am pleased to share that on June 29th, we accomplished one of our key goals. We refiled our Supplemental New Drug Application, or SNDA, to the U.S. Food and Drug Administration for cortofan gel. Building a successful cortofan business is the first of our four pillars of our overall growth strategy. But before I discuss the details of the Cortofin program and other progress we have made during the quarter, let me share some high-level performance metrics for the quarter. Second quarter revenues totaled $48.6 million compared to $48.5 million in the comparable quarter in 2020. Adjusted non-GAAP EBITDA was $13.1 million. Key drivers of our performance versus last quarter were successful new product launches Share capture in existing molecules and improvement in overall market volumes in our generics business. And for our brand business, integration of the Sandoz dermatology portfolio and improvement in overall market volumes were key. Steve will cover the financials in more detail shortly. As many of you know, we have put a great deal of effort diligently engaging with industry experts and the FDA along the way into preparing what we believe is a robust and comprehensive filing package to the FDA for corticofin gel. We filed the SNDA on June 29, 2021. Our goal date is October 29, 2021. Since our submission, we have been engaged in regular productive communications with the FDA as is expected for this type of SNDA filing. This refiling is a significant milestone for the organization, and I am proud of what we have accomplished to date. In parallel, we are continuing to strengthen our rare disease business leadership team and overall organization to drive the Quartrofen gel launch preparation. We have made good progress on and remain focused on executing a holistic commercial approach that ensures this critical product reaches and serves the patients in need. With only one competitor in the same class, the cortofan gel market opportunity remains significant and capable of transforming the size and scale of our company. Turning now to the second pillar of our growth strategy, which is to strengthen our generics business with enhanced R&D capabilities and increased focus on niche opportunities. Our acquisition of NVIDIA was an important step in this direction. The acquisition remains on track to close in the second half of this year, pending FTC clearance and customary closing conditions. In the interim, we are actively planning for integration and ensuring that we combine the complementary strengths of the two companies to bring more new products to market, serve more patients and customers, and maximize the value of our combined assets. Since the deal signing in March, NVIDIA's best-in-class R&D engine has continued to deliver. NVIDIA has gained approval to launch nine new products, including limited competition products such as famotidine powder for oral suspension and flufenazine tablets. In parallel, NVIDIA has filed four new ANDAs. Overall, NVIDIA performs well in line with our investment pieces, and we look forward to closing the deal. As you may recall, our third pillar for sustained growth is maximizing the value of our established brands portfolio. In early April, we signed and closed an accretive deal to acquire the NDAs for OxyStat, Verigen, and Pandel Cream, and the ANDA for Apexicon Cream from Sandoz. I'm pleased to share that these high-quality dermatology products are now integrated into the ANI portfolio. This acquisition exemplifies our stated strategy to expand this part of our business by identifying opportunities with the potential to leverage our innovative brand commercialization infrastructure and our North America manufacturing strength. In closing, we had a productive quarter, and we are pleased with our progress to date. Our goal remains to execute on critical initiatives aligned with the four pillars of our growth strategy to build a sustainable biopharmaceutical company serving patients in need. With that, I'll turn the call over to Steve to discuss our Q2 2021 financials.

Steve?

Thank you, Nikhil. And good morning to everyone on the line. While we are acutely aware that many communities across the country are dealing with the resurgence of COVID-19 cases, we were pleased to see the initial signs of a return to growth for the US generic prescription market in the second quarter. While total U.S. generic market prescriptions for the second quarter of 2021 continue to trail pre-COVID levels, they were up versus prior year and versus prior quarter. We hope for the renewed health of our communities and a continued return to normalcy as the second half of the year progresses. Turning to A&I results, Net revenues for the second quarter of 2021 were $48.6 million as compared to $48.5 million posted in the second quarter of 2020. Sales of our generic products were $34.2 million during the second quarter of 2021, an increase of 2.4% compared to $33.4 million for the same period in 2020. The net gain was due to the increased sales of phenylfibrate, potassium citrate ER, vancomycin oral solution, and the second quarter 2021 launch of nicotipine. However, these increases were tempered by declines in sales of methozolamide, miglistat, penicillamine, and mixed amphetamine salts. Net revenues for our branded products were $11 million during the second quarter of 2021, an increase of 3.8% compared to the $10.6 million for the same period in 2020. The primary reason for the increase was the launch of four products acquired from Sandoz in April and increased sales of Innopran XL. These gains were tempered by decreased revenues of Atacand and Arimidex. Contract manufacturing revenues were $2.3 million during the second quarter of 2021, compared to $2.9 million for the same period in 2020, due to decreased volume of orders from contract manufacturing customers in the current period. Royalty and other revenues were $1.1 million during the second quarter of 2021, a decrease from $1.5 million for the same period in 2020. This decrease primarily reflects declines in product development revenues earned by A&I Canada and the non-recurrence of royalty revenue related to Yes Garda. Our cost of sales, excluding depreciation and amortization, increased by $1.6 million, or 7.8%, to $22.3 million in the second quarter of 2021, mainly as a result of increased volumes in the current year period. The increase was tempered by a $1.2 million decrease related to the decline in sales of products subject to profit-sharing arrangements. In addition, during the three months ended June 30, 2021 and 2020, we recognized $1.5 million and $1.4 million, respectively, in cost of sales representing the excess of fair value over cost for inventory acquired in acquisitions. Excluding these purchase accounting-related charges and other non-GAAP items as detailed in our press release, Our gross margin was 57.2% for the current year period as compared to 60.9% in the prior year period. The compression in gross margin is mainly attributable to increased volumes at lower average selling prices. Research and development expenses decreased from $3 million in the second quarter of 2020 to $2.8 million in the current year, primarily due to the non-recurrence of $0.4 million of 2020 severance-related expense associated with the restructuring of our internal Cortropin development team. Selling, general, and administrative expenses decreased by 11.3% from $21.2 million to $18.8 million primarily reflecting the non-recurrence of $6.5 million of termination benefit expenses related to the 2020 departure of our former President and CEO. These decreases were offset by $1.7 million of transaction expenses related to the pending Novidium acquisition and $2.5 million in sales and marketing expenses related to Cortropin pre-launch activities incurred during the three months ended June 30th, 2021. On August 3rd, 2021, the company entered into a settlement agreement with Arbor Pharmaceuticals LLC to resolve all claims related to our longstanding commercial litigation, which was scheduled for an August 25th trial. Under the terms of the agreement, ANI will pay Arbor $8.4 million and Arbor will dismiss the action with prejudice. Neither party admitted wrongdoing in reaching this settlement. We recorded an $8.4 million charge in the second quarter as a Type 1 subsequent event and will pay the settlement from cash on the balance sheet this month. Adjusted non-GAAP EBITDA was $13.1 million in the second quarter down 2.3 million, or 15%, from the comparable period in 2020, driven by declines in gross profit. As detailed on Table 4 of this morning's press release, our adjusted non-GAAP diluted earnings per share is 67 cents for the quarter, compared with 69 cents in the prior year period. On a year-to-date basis, we have generated $20.9 million of cash flow from operations in the current year period. And as of the June 30th balance sheet date, we had $24.3 million of unrestricted cash and cash equivalents. Total net debt as of June 30th, 2021 increased $22 million to $181.5 million as compared to $159.5 million as of March 31st of 2021, driven by borrowings to fund the April acquisition of the Sandoz products. This figure represents 2.7 times net leverage on a trailing 12-month basis. Consistent with our comments on the first quarter earnings call and in recognition of the ever-evolving nationwide COVID-19 trend, we reiterate our full-year guidance, albeit with a continued orientation toward the low end of the range. Our 2021 guidance figures for A&I standalone prior to giving effect to the Navidium transaction are unchanged as follows. net revenues of $207 million to $218 million, adjusted non-GAAP EBITDA of $60 to $65 million, and adjusted non-GAAP diluted earnings per share of between $3.30 and $3.59 per diluted share. As with before, any sustained COVID-19 suppression of script activity will adversely impact our ability to reach these goals. Finally, on behalf of the entire ANI family, we thank our shareholders for the overwhelming show of support for the Navidium transaction at our annual meeting of shareholders and in the vote to approve to finance a portion of the transaction with ANI equity. We are energized by the potential of this acquisition and look forward to locking arms with NVIDIA in our ongoing mission to bring high-quality pharmaceutical solutions to patients, physicians, and payers. We continue to expect to close the transaction in the second half. With that, I'll now open up the call for questions. Leo, please go ahead with the instructions.

At this time, if you would like to ask a question, press star 1 on your touchtone phone. Again, that is star 1 to ask a question. To remove yourself from the queue, you may press the pound key. One moment while we queue. We'll take a question from Elliot Wilbur of Raymond James. Your line is open.

Thanks. Good morning. Not surprisingly, I guess first question will be with respect to the refiling and acceptance of the SMDA for Cortrofen. Actually, a three-part question for yourself, Nikhil. Specifically, I guess, based on initial interaction and dialogue with the agency on the filing, obviously you have a relatively short timeline here in terms of the established action date. Just wondering if you have any sense yet as to the agency's view of of the requirement for inspection or inspections at any or all of the key points in the supply chain. Second part of the question is, specifically, has there been any dialogue with the agency around the infantile spasms indication on the label, or is that just not part of the discussion at this point in time? And then last part of the question, I just want to get your thoughts on recent trends in competitive product, ACTAR. Sales there have declined rather substantially over the last couple of quarters. There may be a lot of unique factors. there in terms of, I guess, just Malincroft status and maybe the removal from some government programs. But you have signaled more of a true specialty approach in terms of relaunching this asset. And I just wanted to get maybe your initial observations on, you know, whether you think this decline in units in ACTHAR maybe creates an easier setup for you in terms of launch, or whether you think that there may be more heavy lifting involved in terms of trying to reactivate unit demand in that market.

Thanks, Elliot. I will take these questions one at a time. So your first question on the agency view of inspection requirements. Look, as you know well, we can't give specifics on the, you know, on the dialogue. What I can say is we put a great deal of effort in diligently engaging with multiple experts and the FDA along the way into preparing what we believe is a robust and comprehensive filing package to the FDA for ibuprofen. You know, since our submission on June 29th, the FDA has engaged in productive communication as would be expected for this type of SNDA filing. We've responded to their requests and are pleased with the continued engagement with the FDA. So that's on your first question. On the labeling and specific on infantile spasms, again, this is a competitive situation, so I cannot field that question at this time. And then your third one, which is, you know, with what's going on with our competing product, Look, we're monitoring the market dynamics closely here, right, as you would imagine, and we continue to believe that the commercial opportunity is going to be significant for A&I, and most importantly, to bring a much-needed therapy to patients in need. And while I cannot go into specifics for competitive reasons, we do believe that our holistic commercial strategy addresses the headwinds that our competitor is facing.

Okay.

Maybe just one quick follow-up question on the pending Novidium acquisition. I guess, you know, has the interaction with the FDC sort of gone according to plan in terms of review of any potential overlap or divestiture requirements? And is that business at this point still tracking in line with some of the initial numbers you provided in terms of the expected immediate revenue and EBITDA contribution from that deal. Thanks.

Thank you for that, Elliot. Look, the acquisition remains on track to close in the second half of the year. You know, that obviously, as I'm saying, that we're factoring in where the discussions are with the FTC. And Look, we are, you know, we're actively planning for integration and ensuring that we combine the complementary strengths of companies to bring more new products to the market, serve more patients and customers, and maximize value for our combined assets. And, look, as I said in the prepared remarks that, you know, Nuvidium's performance since the deal closed has been, you know, well in line with our investment pieces. and in a number of cases ahead, as you would have noted in terms of the approvals that they have gotten. One thing I forgot to mention in my prepared remarks, which I would like to add, is over the last couple of months, Novidium has also had a successful GMP inspection. It was a prior approval inspection, but they also did a GMP inspection with the FDA, and it just continues to maintain. No surprise to us, but they continue to maintain their a very strong track record with the FDA in terms of GMP and, you know, that's another sort of strength that we will carry forward.

So, yeah.

And this does conclude our question and answer session for today. I'd be happy to return the call to our host for any concluding remarks.

Yeah, thank you. Thank you, Leo.

This is Nikhil Awani again. Look, I'm very pleased that we were able to accomplish our goal of refiling our FNDA for cortofen in Q1, and with the strides that we continue to make in building out our business based on our four core pillars for growth. With an eye towards the future, we are excited about the prospects of ramping our internal research and development capabilities and capturing all of the synergistic opportunities we see with NVIDIA. As always, we remain committed to delivering value to shareholders and bringing important medicines to the patients in need. We want to thank all of you for your time today and hope that you and your families and friends stay safe during this lingering pandemic. Thank you.

This does conclude today's call. You may now disconnect your lines, and everyone, have a great day.