ANI Pharmaceuticals, Inc.

Good day, everyone, and welcome to ANI Pharmaceuticals' third quarter 2021 earning results call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-answer session. You may register to ask a question at any time by pressing star and 1 on your touch-tone phone. I will be standing by should you need any assistance. Please note, this call is being recorded. It is now my pleasure to turn the program over to Lisa Wilson.

Thank you, Emma. Welcome to ANI Pharmaceuticals Q3 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 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 ANIFarmaceuticals.com. Before we get started, I would like to remind everyone that any statement made on today's conference call that expresses 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, anifarmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 1st, 2021. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases at SEC Filings. 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. I am thrilled to share with you that the significant progress ANI has made on our key strategic pillars puts us truly at an inflection point, transforming ANI into a leading biopharmaceutical company serving patients in need and poised for the next period of significant growth. First, as we mentioned this morning, we are delighted that the FDA has approved our supplemental new drug application for our purified corkrophin gel. This is a very important milestone for ANI and a testament to the hard work and dedication over five-plus years of our internal team, along with our suppliers and external consultants, always operating under the guidance of the FDA. Most importantly, it is a victory for the patients with certain chronic autoimmune disorders who cope with a devastating disease on a daily basis. This approval introduces a much-needed choice into the U.S. repository corticotropin market, which for the last 30 years has had only one marketed treatment. Since acquiring the product from Merck back in 2016, we have made significant investments in establishing and updating our manufacturing processes and ensuring a sustainable U.S.-based supply chain, physicians, and the overall healthcare system. The reason this is so important is that there are patients who are refractory or intolerant to corticosteroids. These patients have an especially urgent need for effective alternatives as they are at risk of ongoing organ damage with long-term disease. Specifically, the FDA has approved our Cortrophin gel for the treatment of multiple chronic autoimmune disorders including acute exacerbations of multiple sclerosis and rheumatoid arthritis, in addition to excess urinary protein due to nephrotic syndrome. Cortofan gel is approved for all current ACTH indications, with the exception of infantile spasms. In addition, our product is the only ACTH-based therapy approved for the treatment of Gaudi arthritis. Turning now to our commercialization strategy, The ACTH market in 2020 was approximately $770 million of revenues with only one competitor in the class. We are planning a full-scale market launch by early first quarter of 2022. We have already onboarded an energized and highly experienced rare disease leadership team to drive the successful launch. We have also been building sufficient finished product inventory levels to support a timely launch. We have significant ongoing investment in people and commercial infrastructure for our launch. Key elements of our plan include a strong sales force, optimal market access and reimbursement, bespoke distribution, salient hub and patient support services, medical affairs, and marketing and advocacy. I look forward to sharing more details of these programs as we get closer. Moving now to progress on the second key strategic pillar of strengthening our generics business through enhanced R&D capabilities and increased focus on niche opportunities. Our acquisition of NVIDIA is on track to close in November. We have engaged in extensive discussions with the FDC over the past several months to obtain the necessary approval of the acquisition and are pleased to report that the agreements containing consent orders have been finalized with the FDC staff and are awaiting final approval by the commissioners. We currently expect to close the acquisition later this month. In parallel, the underlying deal pieces continues to strengthen. In the eight months since we announced the deal, NVIDIA has garnered 10 approvals with several limited competition launches, and we currently anticipate new launch momentum to continue post-deal closure. With this transaction, ANI is gaining a robust R&D engine built by a highly experienced R&D team that will accelerate new product launches, which is critical in the generics business. In addition, Davidium brings multiple dosage form capabilities and an efficient process for gaining approvals once filed and launching promptly after approval. Add to the fact, that NVIDIA's base business actually has grown from 2020 to 2021, reflecting its reputation as a highly reliable supplier with a strong cost position. All of these factors will complement ANI and help us grow our generics franchise. The combined company will have great technical capabilities to bring complex, high-value products to market efficiently and cost-effectively. We are very much looking forward to closing the deal and joining forces with the Novidium team to strengthen our position in this segment and bring important therapeutics to the patients who need them. In parallel to these exciting developments, we have delivered a strong third quarter and have continued to enhance our base business and core capabilities. Third quarter revenues totaled $52.1 million and adjusted non-GAAP EBITDA for $16.6 million. In September, we launched Nibivalol, our generic version of the reference-listed drug by Stolic. This is an important product launch for us as we showcase our ability to secure the supply chain for patients and customers by simultaneously launching across two manufacturing sites, our Baudet, Minnesota plant and the one we acquired Nibivalol from. This redundancy also provides us a unique opportunity to take advantage of parts of the market that are not accessible to others. We look forward to capturing the full value of this important launch, and more importantly, continuing to serve the patients in need. It has been 14 months since I joined ANI, and I'm delighted at the tremendous progress we have made as a team and the momentum that we have built. We have taken stock of our capabilities understood our gaps, and the market opportunities to clearly define four strategic pillars. We have prioritized and worked relentlessly to achieve critical milestones on the key strategic pillars. Approval of cortofan gel, preparation for full-scale commercial launch, and the acquisition of a best-in-class R&D engine to enhance our generics business. ANI, is truly at an inflection point to transforming into a leading biopharmaceutical company serving patients in need and well poised for the next period of significant growth. With that, I'll turn the call over to Steve to further discuss our Q3 2021 financials.

Thank you, Nikhil, and thank you to everyone on the line that has joined us on this exciting day in A&I's history. Net revenues for the third quarter of 2021 were $52.1 million as compared to $53 million posted in the third quarter of 2020. Sales of our generic products were $35.1 million during the third quarter of 2021, a decrease of 6.8% compared to the $37.7 million for the same period in 2020. The net decrease was due to declines in sales of EES, methozolamide, penicillamine, and vancomycin. These decreases were partially offset by the second quarter 2021 launch of nicardipine and the third quarter 2021 launch of nabivalol. The decrease in net generic revenues was due in part to a decrease in average selling prices tempered by increased volumes among our generic products. Net revenues for our branded products were $14.3 million during the third quarter of 2021, an increase of 15.3% compared to the $12.4 million for the same period in 2020. The primary reason for the increase was the April 2021 launch of the products acquired in the Sandoz Inc. acquisition. These increases were tempered by decreased unit sales of Innopran XL. The increase in net brand revenues was due in part to higher volumes tempered by a shift in mix towards brand products with lower average selling prices. Contract manufacturing revenues were $2.4 million during the third quarter of 2021, compared to $2.2 million for the same period in 2020, due to a current year shift in mix towards customers with higher average selling prices, mostly offset by a decrease in the volume of orders. Our cost of sales, excluding depreciation and amortization, increased by $4.3 million, or 21.3%, to $24.4 million in the third quarter of 2021, mainly as a result of $2.2 million in cost of sales, representing the excess of fair value over cost of inventory acquired in the Sandoz Inc. asset acquisition process. and subsequently sold during the period, and increased volumes in the current year period. The increase was tempered by a $1.1 million decrease related to a decrease in sales of products subject to profit-sharing arrangements. Excluding these purchase accounting-related charges and other non-GAAP items as detailed in our press release, Our gross margin was 57.4% for the current year period as compared to 62% 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 $2.9 million to $2.5 million, a decrease of 16.4% primarily due to a decrease in expense related to cortofin as we complete the development stage of the project. Selling, general, and administrative expenses increased from $15.7 million to $17.2 million, an increase of $1.5 million or 9.3%. primarily due to the $500,000 of transaction expenses related to the pending Navidium acquisition, and $2.1 million in sales and marketing expense related to Quartrofin prelaunch activities incurred during the three months ended September 30th, 2021. Adjusted non-GAAP EBITDA was $16.6 million in the third quarter, down 2% from the comparable period in 2020, principally due to declines in gross profit. As detailed on Table 4 of this morning's press release, our adjusted non-GAAP diluted earnings per share is $1.01 for the quarter, compared to $0.97 in the prior year period. On a year-to-date basis, we have generated $15.5 million of cash flow from operations. And as of the September 30th balance sheet date, we had $15.3 million of unrestricted cash and cash equivalents. Total net debt as of September 30th, 2021 increased $6.2 million to $187.6 million. as compared to $181.4 million as of June 30th of 2021. This figure represents 2.9 times net leverage on a trailing 12-month basis. As we look forward to closing out 2021, we continue to believe that we will achieve our original stated financial goals and therefore reiterate our full-year guidance. with a continued orientation towards the low end of the range. Our 2021 guidance figures for ANI 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. We anticipate that our fourth quarter Cortropin sales and marketing expenditures will continue to significantly increase as we accelerate activities in advance of our planned full-scale commercial launch in early Q1 of 2022. Our 2021 guidance figures assume that we continue to add back cortofin sales and marketing expense as pre-launch in the fourth quarter for purposes of our non-GAF measures. Finally, we are delighted to have received FDA approval for cortofin gel and look forward to executing our strategic go-to-market plan in an effort to serve patients in need In addition, we are excited to join arms with our new Navidium colleagues in the near future and collaborating to maximize the complementary strengths of our two organizations. I echo Nikhil's comment that ANI is at an inflection point, and our entire team is energized by the promise of our future. This is an exciting time for ANI, and we appreciate the support of all of our stakeholders and our shareholders as we pursue our goal of bringing high-quality medicines to the U.S. healthcare system. I'll now open up the call for questions. Operator, please go ahead with the instructions.

At this time, if you would like to ask a question, please press star 1 on your touch-tone phone.

You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and 1 to ask a question. We take our first question from Elliot Wilber with Raymond James.

Thanks. Good morning. And I just want to extend my congratulations to yourselves and the extended team on the approval of Catrophin. I know it's been a long journey, more of a quest than a journey, but congratulations and obviously looking forward to the launch. Nikhil, just a couple of questions for you specifically around the launch, and I understand that we've probably a lot more to say about this in the near future, but anything you can say at this point in terms of steps or initiatives that have to take place prior to the actual launch and specifically thinking about what we may see in terms of market preparation strategies, any additional team member additions, payer engagement initiatives, and where are you in terms of existing inventory levels necessary to support the launch relative to the initial uptake that the company sees at this point.

Thank you, Elliot, for your question. Look, to answer the second part of your question first, which is that we do have sufficient finished product inventory levels. You've seen that in the prior quarters as we've been building these inventory levels up to support the timely launch. So we do have sufficient finished product inventory levels. Of course, with the labeling that has just been finalized and approved by the FDA, that needs to be reflected on the finished dose vials. So I think that's the answer to your question on inventory. As far as our launch plans and commercial plans, I think thank you for agreeing to allow me to give you more information information on this in the future. As I said earlier, we have significant ongoing investment in people and commercial infrastructure for our launch, and the key elements of our plan include a strong sales force, optimal market access and reimbursement, bespoke distribution, salient hub and patient support services, medical affairs, and marketing and advocacy. And look, we have on board a very experienced and successful rare disease leadership team that have done multiple launches across organizations and have come together very well and in a focused manner been preparing for a launch. So I feel very confident that the same prioritization, focus, and efforts that we brought to get this product approved under the guidance of the FDA. We will bring that same level of commercial acumen and relentless efforts to ensure that we serve patients in need, which is ultimately the goal of our company.

Okay. If I could ask you a follow-up question with respect to the label itself, how does the label actually compare to your expectations prior to the approval. And are there any indications on the current label that you think present an incremental opportunity, areas where maybe the legacy product has not been able to penetrate or be successful in just because of its price point or focus, just whether or not you think there's Opportunities for incremental growth may be outside the three main indications that you highlighted in the release.

Yeah. No, so you're absolutely right, Elliot. Cortofengel is approved for all the current ACTH indications with the exception of infantile spasms, which, as you know, from our understanding, is less than 10% of the market. Specifically, the FDA has approved cortofan gel for the treatment of multiple chronic autoimmune disorders, including, as you said, the three main indications, which are acute exacerbations of multiple sclerosis and rheumatoid arthritis, and in addition to excess urinary protein due to nephrotic syndrome. There are several other indications. And then to your point on, you know, our label does have, our product does have is the only ACTH-based therapy that is approved for the treatment of gouty arthritis. So hopefully that answers your questions.

Okay. And if I could just switch gears real quickly, just maybe a bit of an update on the Novidium acquisition, just an update in terms of how the business has performed over the course of the year relative to the financial projections that you put out there when You first announced the deal. Is there any update you can provide in terms of where the pipeline stands? I know there's been quite a few approvals over the course of the year. I'm not sure how that compared to expectations, but I haven't heard as much in terms of filings. Just kind of curious, you know, where that stands.

Yeah. So, overall, Elliot, you know, Novidium has had 10 approvals since we signed the deal in March. And in terms of commercial performance, to the best of our understanding, is on track, almost actually a shade better than what we had expected. And that's obviously driven by the success of the new launches, many of which you've taken note of, several that have had CGT designation. And so, you know, they are, you know, the investment pieces is on track. As far as the new filings, you know, it is not typical in the generics business to announce filings unless it's a Para 4 filing and you get sued. It's more typical to keep that confidential so that, you know, you're drawing less attention to it. And so, you know, Nubidium's, World-class R&D engine led by Sammy and Chad continues to add exciting products to their pipeline that will continue to deliver and unlock new launches in the future. So that is absolutely on track and, in fact, ahead of our investment case.

Okay, thanks. And just a last question, just a couple quick ones for Steve. Specifically, Steve, can you talk a little bit more about what you're seeing in the base generics business? I guess my takeaway is that maybe price deflation is a little bit higher than what has been anticipated, but you've been able to offset that with volumes. I'm not sure if that's accurate or not, but that seems to be kind of a what's going on in the marketplace as a whole. And then just more specifically, if just a comment on accounts receivable trends over the last couple of quarters. Thanks.

Yeah, sure. Elliot. Good morning. Yeah. In, in terms of the, the core generics business you know, as you know very well the pricing trends right in the aggregate for portfolio tend to follow the aggregate age of that portfolio. And so I would say in total for A&I generics, you know, price deflation has accelerated as the quarters have gone by. And your premise is exactly right. The team has very well come together to kind of really laser focus in on opportunities and where we could, um, you know, kind of do more with our existing commercialized portfolio as the pipeline comes along. Um, and, and you started seeing that in the third quarter, right? With the Naviba law launch, um, the A and I, uh, generic launches, um, were always back end loaded for 2000, uh, 21. And Nibibilol was a nice late third quarter shot in the arm to our aggregate generics portfolio. And we look forward to continued strength there, as well as other launches as the fourth quarter ticks by. And it really circles around right to the investment thesis behind the Nividium deal. and bringing in that internal R&D where we can accelerate the cadence of our generic launches to prop up that pricing component of the overall generic portfolio. In terms of AR, the trend goes along with that decrease in average selling prices just because the way that the receivables work and track for the generic portfolio, the reduction in average selling prices largely manifests itself in higher chargeback rates. And as those chargeback rates increase, it allows our big three wholesale customers to kind of stretch out their net payables to us. And so, you know, that's why you see the AR kind of creeping up and the DSO creeping up. And, you know, we expect that to kind of come back to more normalized levels as, again, we get the generic launch cadence up post-Navidium deal close. Hopefully that helps.

Yes, thank you. Thanks for taking the questions.

Before we move to the next question, just two things to add, Elliot, for you and the others. One is we have seen some pickup in the volumes also from post-COVID pickup, and that's helped on parts of our base business. And then the second thing is that, look, we are confident that and we're seeing it play out, as Steve was talking about regarding the investment pieces, that the pace of new launches between NVIDIA and their launches, as well as the ANI-based launches, will outpace the erosion that we're seeing in our base business. And that's the whole basis for the investment and acquisition of NVIDIA, so I just wanted to reiterate that.

And once again, that is star one to ask a question.

We'll take our next question from Brandon Foulkes with Cantor Fitzgerald.

Hi, thanks for taking my question today, and congratulations on the approval. Granted, you don't want to give away too much of your competitive strategy, but can you just talk about maybe how physicians will make prescribing decisions between your product and XR? What may make a prescriber of XR switch to your product? or what do you believe it would take for a non-writer to now write cortofan gel? And then secondly, maybe, are you open to a partnership on cortofan in some specialties now that you have an approved product in hand? Do you think that's something we could see in terms of maybe your non-core focus, or should we think of you keeping everything in-house? Thank you.

Yeah. No, thank you, Brendan, and good morning. I'll take your second question first, which is, you know, are we open to partnership? At this point, we are contemplating launching across indications ourselves. But as wise mentors have told me over the years, never say never. So, yeah, you know, that's something that as we're required to, we will evaluate as those, potentially those partnerships come up. And then in regards to, you know, why would a prescriber write purified cortofen gel versus the competing product, I'm not going to address, I'm not going to share that secret sauce with you, but I will say that you should be assured that we have spoken to many, many prescribers and have a clear understanding of a willingness and eagerness really to bring another option, second treatment option for patients that need this. And I'll leave it at that.

Okay, thank you. There are no further questions at this time.

Nikhil, you might be on mute for your parting comments.

Yeah. Thank you, Steve. And thank you for your time to everyone this morning. We really appreciate it. And thank you for your support of A&I. A&I truly is at an inflection point to transforming into a leading biopharmaceutical company serving patients in need and well poised for the next period of significant growth. And thank you again for your time this morning. Thank you.

Thanks everyone.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.