ANI Pharmaceuticals, Inc.

Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. Fourth Quarter 2021 Earnings 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-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touch-tone phone. Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Judy DiClemente.

Thank you, Brittany. Welcome to ANI Pharmaceuticals Q4 2021 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 investor section of the ANI website at www.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 March 15, 2022. 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?

Thank you, Judy.

Good morning, everyone, and thank you for joining the A&I Pharmaceuticals call today and for your interest in our company. I hope you, your families, friends, and colleagues continue to stay safe and well. I'll start with commenting on the overall 2021 performance. In 2021, ANI delivered revenues of 216.1 million and adjusted non-GAAP EBITDA of 64.8 million. Our adjusted non-GAAP diluted earnings per share of 54 cents reflects the increased number of shares outstanding. During this period, we continue to face increased competitive intensity and resulting pricing pressures in the generic side of our business, as well as the impact of COVID on prescriptions for both the established brands and generics businesses. I am proud and appreciative of the hard work of all of our employees, customers, partners, and suppliers as we continue to deliver high-quality medications to patients in need. In 2021, We also achieved important goals against the key pillars of our growth strategy to drive ANI past an inflection point in our evolution towards becoming a leading biopharmaceutical company. First, on January 24, 2022, we announced a full-scale commercial launch of the lead asset of our rare disease business, Purified Cortofan Gel. Bringing Cortofan Gel to market was a victory for ANI and, More importantly, for patients, escortrophin gel has the potential to help patients with certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis and excess urinary protein due to nephrotic syndrome. These patients are forced to cope with a devastating disease on a daily basis. Multiple evidence-based treatment guidelines indicate that corticotropin or ACTH may be considered for patients who require additional treatment beyond standard of care, which often includes steroids. A claims-based epidemiology analysis suggests that less than 10% of patients who are steroid-resistant and refractory across primary indications receive ACTH therapy. the ACTH market in 2021 was approximately $600 million in revenues, reflecting the significant impact of the COVID-19 pandemic on the only competitor in the class. The alleviation of the COVID impact is visible in the growth seen in the ACTH market between Q3 and Q4 of 2021. The reintroduction of cortofan gel for select indications gives prescribers another ACTH therapy, which can mean a greater chance for an effective treatment for some patients. As we share more about the cortofan gel launch, please bear in mind that we have held back information to not reveal our plans to our competitor. We have invested significantly in building a world-class rare disease team and the infrastructure needed to drive a successful launch. Our rare disease leadership team led by Chris Muntz, has experienced over 20 rare disease product launches. Recent additions to the leadership team include Dr. Mary Powell as Chief Medical Officer and Elizabeth Powell as Chief Compliance Officer and Head of Legal. Our winning sales force will be approximately 50 persons strong and led by their inspirational leader, Holly Zickler. Our clinical account executives have an average of over 12 years of successful sales experience in the rare disease and specialty areas, including with leading rare disease-focused biopharmaceutical companies such as Alexion, Horizon, Alnylam, and Gilead. Nearly 75% of the sales team has won a President's Club or equivalent top 10 sales award in recent years. In preparation for launch, this experienced team went through comprehensive clinical and product training to fully prepare them to hit the ground running on day one of launch. We have also in place strong functional teams including medical, marketing, market access, commercial operations, analytics, finance, and compliance. In addition, we have secured the U.S.-based distribution footprint and supply chain. Cortofengel is now available through a network of specialty pharmacies and distributors. For appropriate patients, healthcare providers can submit a prescription and initiate access to treatment to a specialty pharmacy by visiting www.cortofen.com. We've also established and updated our manufacturing processes and ensured a sustainable U.S.-based supply chain for key starting materials, API, and finished goods. ANI is committed to supporting meaningful patient access to cortofan gel and to bringing a more affordable ACTH therapy to government and commercial payer plans, prescribers, and patients. We are very encouraged by our ongoing conversations with payers as well as the pharmacy benefit managers, or PBMs. As part of our commitment to establishing meaningful access to cortofan gel, we've created Cortofan in Your Corner, a dedicated program for patients and their caregivers throughout the treatment journey that includes one-on-one access, reimbursement support, financial assistance for eligible patients, and nurse-provided injection training. Cortrofen in Your Corner also provides access and reimbursement support for healthcare professionals and their staff. Finally, we are very pleased with the early physician response we have seen for cortrofen. It's perfect timing as most physicians are ready for in-person visits. We're confident that seeing the strong weekly trend for prescriptions and new patient case initiations continues to accelerate over the past six weeks as our sales force is meeting with physicians in our initial focus specialty areas. Overall, the Cortofengel launch is off to a very good start, and we continue to expect Cortofengel to be a significant go-driver with commercial longevity. While we are not yet ready to provide specific cortofin guidance in this early stage launch, we are encouraged by the early traction we are seeing. Turning now to the second pillar of our growth strategy to strengthen our generics business with enhanced R&D capabilities and increased focus on niche opportunities. In November, we completed our acquisition of Novidium Pharma, bringing a high-performance R&D engine to ANI. The R&D engine continues to deliver with eight new product launches since deal closure and five new ANDA filings already in 2022. Today, ANI has over 30 ANDA files pending with the FDA and over 25 applications and multiple 505 products under development. Equally important, ANI's R&D engine strengthened its track record of bringing limited competition products to the market with the largest number of competitive generic therapy, CGT, approvals. Most recently, ANI received CGT designation and the associated 180 days of exclusivity for the launch of Betaine and Hydra solution in addition to receiving approval of our first 505 B2 product. Our R&D efforts across New Jersey, Baudette, and Oakville are now fully integrated under the leadership of Sami Shanmugam. Along with Chad Gasser, who leads our portfolio strategy and corporate development functions, we are focused on increasing the productivity of our R&D teams and strengthening our product pipeline to bring much-needed, quality, affordable medications to patients in need. and to increase the sustainability of our generics business with new product launches. As you would expect, we had in place a clearly defined 100-day integration plan across key functions such as commercial, HR, operations, quality, supply chain, and finance. Our teams continue to execute well against these plans with a dual focus on ensuring continuity of business operation and capturing synergies from the combination. The eight new product launches, consistently high service levels, and positive feedback from our customers highlight the effectiveness of our integration. Our Synergy capture efforts cover procurement savings, distribution and operational efficiencies, and enhanced R&D productivity, as mentioned earlier. Overall, the Novidium Pharma acquisition is off to a great start. The third pillar of our growth strategy is to maximize value from established brands through innovative commercialization strategies and strong business development, which has been a longstanding strength of ANI. In 2021, we successfully acquired and integrated four dermatology brands from Sandoz. We continue to evaluate accretive asset acquisition deals in this area and further augment our unique commercial and organizational capabilities. The fourth pillar of our growth strategy is to expand our CDMO business, leveraging our North America manufacturing footprint and certain unique manufacturing capabilities. Several of our customers here are facing the pricing headwinds from increased competition. We continue to explore opportunities that the addition of the Novidium site in New Jersey and new customers that Novidium served bring. I'd like to close by sharing three elements of ANI's strong foundation that enables us to deliver sustainable growth and become a leading biopharmaceutical company serving patients in need. First, ANI's new capital structure comprised of the recently completed $75 million equity raise and the closure of the new $300 million term loan B, $40 million revolver, and $25 million pipe gives the company significant flexibility in ensuring a strong purified porphyrin gel commercial launch, supporting the integration of Novidium into ANI and propel the next phase of growth for ANI. Second, we have in place high-performing leadership and teams with the necessary experience and expertise across our diversified businesses. Finally, we're cultivating an ANI united culture to serve our patients and physicians in need by continuing to identify patient populations that are underserved, and medicines that can help them. Now, Steve will provide the details behind our Q4 2021 financials.

Steve? Thank you, Nikhil, and good morning to everyone on the call. As Nikhil just mentioned, the company completed numerous strategic initiatives in the fourth quarter of 2021, most notably the FDA approval of Cortofin, the close of our acquisition of Navidium, the corresponding refinancing of our debt structure, and a secondary public equity raise. These events have had significant impacts on our fourth quarter financial statements. On October 29th, we received FDA approval for our purified cortofan gel product. In response, we proceeded with the final pre-launch spend necessary to fully build out our rare disease sales and marketing team. During the fourth quarter, we finalized marketing plans and field force materials, rounded out recruitment of key home office personnel, and fast-tracked recruitment of our clinical account executives in advance of our January 24, 2022, full-scale launch. These efforts resulted in $9.2 million of quattrofen-specific fourth-quarter spend, which has continued to be added back to our non-GAAP metrics as pre-launch expenditures. Beginning in the first quarter of 2022, we will reflect the full Cortofin SG&A spend in our non-GAAP metrics. On November 19th, we closed our acquisition of Navidium, and as such, Navidium's results for the final 41 days of the year are reflected in our consolidated results. Our preliminary purchase price allocation is reflected in our December 31, 2021 balance sheet and reflects GAAP fair market value of consideration of $206.2 million, intangible assets of $139.2 million, and goodwill of $24.3 million. We incurred approximately $9.4 million of transaction costs which were expensed as incurred and are reflected in SG&A in our GAAP financial statements and have been added back for our non-GAAP measures. In conjunction with the close, we refinanced our previous Term Loan A credit agreement with a $300 million Term Loan B and a $40 million revolving credit facility. The new debt was utilized to fully repay $200.1 million of term loan A debt and to partially finance the NVIDIA acquisition. The new term loan B bears interest at LIBOR plus 6% with a 75 basis point LIBOR floor. In addition, we issued approximately 2.5 million restricted shares of common stock to selling shareholders of NVIDIA. These shares contain restrictions on their post-closed transfer, ranging from three to 24 months following the completion of the acquisition. Lastly, we placed a $25 million of Series A convertible preferred stock to Ampersand Capital in a pipe transaction. The preferred shares accrue dividends at a rate of 6.5% per year and are payable either in cash or in kind. These shares are recorded as mezzanine equity on our December 31st, 2021 balance sheet. In November, we placed $75 million of common stock in a secondary public offering, resulting in the issuance of 1.5 million common shares and net cash proceeds of 69.7 million after cost of issuance. The culmination of these activities and financing efforts resulted in $100.3 million of unrestricted cash on our balance sheet as of December 31st. This balance, along with our $40 million revolving credit facility, which remains undrawn, places us in a strong position to support the Cortropin launch, fund the integration of Navidium, and allow the company to explore product-level Tuckian acquisitions during the course of 2022. Now, we will turn to fourth quarter financial results. Despite ongoing industry headwinds, including significant generic price pressure, ANI has continued to grow through incremental revenues from the NVIDIA acquisition, with net revenues for the fourth quarter of 2021 of $60.9 million as compared to $57.3 million posted in the fourth quarter of 2020, or a 6% increase. Nividium contributed $7.7 million of net revenues during the initial 41 days of the consolidation of results. Net revenues for generic pharmaceutical products were $41.6 million during the three months ended December 31st, 2021, an increase of 8% compared to $38.7 million for the same period in 2020. The net increase was primarily due to the November 19th acquisition of Novidium and the third quarter 2021 launch of Novivilol, tempered by sales declines for tolteridine and vancomycin and a decrease in the average selling price of generic products. Net revenues for branded pharmaceutical products were $14.7 million during the three months ended December 31st, 2021, a decrease of 7% compared to $15.8 million for the same period in 2020. The change was a result of fewer unit solds of Arimidex and Inderal XL, partially offset by the second quarter 2021 launch of brand products acquired from Sandoz. Contract manufacturing revenues were $2.8 million during the three months ended December 31st, 2021, an increase of 26% compared to $2.2 million for the same period in 2020, partially due to NVIDIA-related CDMO gains. Operating expenses on a GAAP basis increased by 49% to 84.7 million for the three months ended December 31st, 2021, up from 56.9 million for the prior year period. Cost of sales, excluding depreciation and amortization, increased by 9.4 million to 33.9 million in the fourth quarter of 2021, compared to 24.5 million in the prior year period, primarily as a result of increased volumes. The increase also includes a charge of $3.7 million to recognize the excess of fair value over cost for assets acquired as part of the NVIDIA transaction, and a $1.9 million litigation settlement, which was recorded to royalty expense. These items were partially offset by a $1.6 million of decrease related to sales of products subject to profit sharing arrangements. Excluding stock compensation and these impacts on a non-GAAP basis, cost of sales as a percentage of revenues was 46.2% compared to 42.6% on a like basis for the fourth quarter of 2020. The 3.6 point reduction in margin is principally the result of price compression in our generic product offerings and negative mix. Research and development expenses declined from $3.7 million to $3.1 million, a decrease of 15%, primarily due to the timing of generic R&D projects and the completion of the R&D phase of the Cortrophin Recommercialization project. Selling, general, and administrative expenses increased by $16.3 million in the fourth quarter of 2021 to $30.7 million compared to $14.4 million in the comparable quarter in 2020. The increase primarily reflects $4.3 million of transaction expenses related to the Navidium acquisition, $9.2 million in sales and marketing expenses related to Cortropin prelaunch activities, and increased headcount costs, including those associated with Navidium subsequent to the acquisition. Depreciation and amortization expenses were $13.7 million for the three months ended December 31st, 2021, an increase of $2.8 million compared to the same period in 2020. The increase is primarily a result of the initial amortization of intangible assets acquired in the Navidium transaction. Adjusted non-GAAP EBITDA for the fourth quarter was $16.2 million compared to $17.2 million for the fourth quarter of 2020, a decrease of 5.8%. Our adjusted non-GAAP diluted earnings per share was $0.54 for the quarter, compared to 80 cents for the fourth quarter of 2020. It is worth highlighting that fourth quarter non-GAAP EPS metrics reflect 14.2 million diluted shares, representing a partial quarter of additional shares outstanding related to the NVIDIA acquisition and the fourth quarter equity raise. During the year, we generated $3.3 million of cash flow from operations And as of December 31st, we had $100.3 million of unrestricted cash and cash equivalents. Cash flow from operations during 2021 was constricted by approximately $10.5 million of cash-settled Cortropin pre-launch activities, $9.4 million of Navidium transaction costs, and $8.4 million of cash-settled litigation settlements. These items were tempered by approximately $13 million of cash collected in the second quarter related to the final YesGuarda-related royalties. Total net debt utilizing the face value of that net of our cash on hand as of December 31st was $199.7 million, an increase of $12 million from September 30th, 2021, driven by incremental debt incurred with the Novidium acquisition as tempered by the additional cash on the balance sheet, principally resulting from the public equity raise. Net leverage was 3.1 turns on a trailing 12-month basis as of the balance sheet date. Now turning our attention to forward-looking guidance. For the projected 12 months ended December 31, 2022, ANI is providing guidance on ex-cortrophin net revenue and ex-cortrophin adjusted non-GAAP EBITDA, total company research and development expense, and cortrophin-specific SG&A. The following summarizes 2022 guidance. For total company ex-purified cortrophin gel, we currently anticipate net revenues of between $260 and $275 million, representing approximately 20 to 27% growth as compared to 2021, and adjusted non-GAAP EBITDA of between $70 and $75 million, representing 8 to 16% growth as compared to 2021. On a total company basis, we expect research and development expense of between $16 and $18 million. And relating specifically to purified cortofan gel, we anticipate direct selling general and administrative expenses of between $42 and $46 million. In addition, we currently project between 16.9 and 17.3 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. With that, we'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 the star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one if you would like to ask a question. And we'll take our first question from Brandon Foltz with Cantor Fitzgerald. Your line is open.

Hi, thanks for taking my question. Maybe just two from me. I guess, you know, I know that you may not be willing to answer this at this stage, but I guess on the Cortropin launch in one queue, Are you willing to just talk about where you are seeing initial reception there? And then maybe just on Novidium, can you just remind us in terms of what you said about that acquisition being accretive? Should we think of it being accretive in 2022? I see it recorded a net loss of $1.4 million from close to December 31. So just anyone how to think about... with Vidium being a creature in 2022 and its impact on operating cash flow going forward.

Thank you. Yeah, thanks. Thanks, Brandon. Good to hear from you. Steve, why don't I take the first question and then you can tackle the second?

Sounds good.

All right. So, regarding early traction of corticofin, as you rightfully pointed out, we want to be thoughtful about what we share given our competitors, the early stage of our launch and our competitor may be listening. And so what we're willing to say at this point is, look, it's been perfect timing for us as most physicians are ready for in-person visits. We're seeing a strong weekly trend for prescriptions and growth week on week and new patient case initiations. And so while we're not yet ready to provide prescriptions, specific corporate guidance in this early stage of launch, we're very encouraged by the early traction we're seeing.

Steve? Yep.

Yep. Thanks, Brandon, and good morning. Yeah, so on NVIDIA, you know, NVIDIA is generating modest growth overall for our overall brand, I'm sorry, our overall generic business. However, our base business, we do expect to have continued pricing erosion. So as we've talked a lot about in the past, on the generic side of the house, it's a game of having our generic launches outpace the erosion in our generic base business. And so we do see our generic business posting growth in 2022. In the overall guidance, however, remember that on the established brand business that you would continue to have erosion in that portfolio. And as typical and consistent with past practices, our guidance does not reflect any assumptions around business development And as I said in my prepared comments, right, A&I does expect, now that NVIDIA is closed, we do expect to continue to look for, you know, product-level tuck-in acquisitions as we've done historically in the past. And so, you know, in the guidance that's reflected, we do have reductions on the brand excortrophin side of the house. So I think that's what you're seeing in the overall guidance. And on your comment, I think, yeah, and last point, and as I was speaking to my prepared comments, right, on the expense side, I think you alluded to gap net loss in the fourth quarter. There's obviously in the fourth quarter, a very significant amount of transaction-related expenses, whether it relates to the NVIDIA transaction, the debt refinancing, and the equity raise. And so I would point everyone to the press release and the tables to the press release, where we not only have the reconciliation to get to the nod gap, EBITDA metrics, but we also provide a reconciliation for, you know, some of the key functional expense areas. And so, particularly on the SG&A side, I would point you to those non-GAAP reconciliations.

And if I can just follow up there. You know, I'm talking about NVIDIA operations in particular. Just looking in the K here. I think they recorded a net loss of $1.4 million in or that sort of month and a half. Should we get that to reverse? Yeah.

Yeah. If you're picking that up from the, you're picking that up from the, from the, the pro forma disclosures in the K. Yes, Brent.

Correct. Oh, just ahead of the pro forma.

Yeah. Yeah. So in that, right. In that, in that gap footnote disclosure, that's done on inclusive of all of the purchase accounting adjustments and overlays that, you know, GAAP has you do in business combinations. So that would have, you know, amortization of intangibles, inventory step-up assumptions, et cetera. And so, yeah, so that's on a fully-baked GAAP basis. Okay. Okay, that's very helpful.

Thank you. Can I just sneak in one more coming back to Axar? I mean, quattropine would be important. But on the Axar market, you know, your competitor did put out numbers this morning. Nikhil, you did touch on this, that decline, and you mentioned you are seeing it reverse. Any way you can help us frame how you're thinking about the quattropine market in general in terms of how much it could reverse in 2022, you know, hopefully with COVID lifting?

Yeah.

Look, at this point, I think a couple of things, a couple of data points to share. I think you, I think we all know, you know, what the ACTH market was in 2020. I believe it was $770 million-ish, right? So that's one data point. You also know that this is in the public domain, that the only other player has taken a price increase recently for this product. And that, you know, the other data point that I shared, right, that a claims-based epidemiology analysis suggested that less than 10% of patients who are steroid-resistant and refractory across primary indications receive ACTH therapy. So I think just those three data points we're willing to share at this point. And that's what drives our understanding of the tremendous opportunity in this product and to benefit patients in need.

Great. Thank you very much, both of you.

Yeah, thanks, Brandon.

We will take our next question from Greg Frazier with True Securities. Your line is now open.

Good morning, folks. Thanks for taking the questions. Following up on the comments on the generics, can you provide some color on how you're thinking about price erosion for the base business in 2022? And can you also comment on how much erosion you saw in Q4 for the base business?

Sure, Greg.

So I'll take the first part. I'll let Steve chime in for the second. Look, you know, as many of the larger players have reported earlier, I think that You know, we see the erosion in our base business to be in the high single digits, low double digits. Obviously, it varies. There is increased competitive intensity, as you have heard a lot about, more approvals for products that already have two to four players. We're counting on the portfolio and the pipeline that we have from the NVIDIA acquisition. from E&I New Jersey to sort of balance and drive growth and achieve growth from these new launches. So that's where I would sort of orient you in terms of erosion. Regarding Q4, Steve?

Yeah, and good morning, Greg. Yeah, in Q4 actuals, we experienced – base generic erosion in the low double-digit range prior to product launches. So, our fourth quarter experience is essentially in line with the planning assumptions for 2022. Got it.

Okay. And then on the SG&A spend for core trove, and how much of that is temporary launch spend that will wind down over time? Or should we think about that 42 to 46 million as a base level of spend that you'll ramp up as necessary to drive demand as the product grows?

Yeah, good question.

So, look, as mentioned before, we'll limit what we're sharing to not hand over important information. You know, as far as our spend of 42 to 46, just to give you a bit more color, First major spend bucket, obviously, is people, you know, a bit more than half the spend is on the people. We can divide this into two groups. We have an almost 50% strong sales team. As we mentioned earlier, you know, our clinical account executives are highly experienced in rare disease, over 12 years experience from the leading rare disease companies, such as Horizon, Alexion, Alnylam, and Gilead. 75% of them have won President's Club or equivalent in recent years. So please factor that in your understanding if you think of cost to company per rare disease sales rep. So that's one. In addition, we've had to bolster organizational infrastructure in key areas such as marketing, medical, market access, compliance, operations, and analytics. And then to your point, there's also a significant spend on commercial and operational infrastructure, some of which is a, you know, is a setup expense. as, you know, a lot of this we've had to build from scratch. These include infrastructure and system for the sales team, including Viva, the CoverMyMeds Hub, other operational and data and analytic systems and services. Finally, there are the key areas of OPEX that, you know, are typical for a rare disease launch across marketing, medical, compliance, et cetera. Again, we prefer to steer clear of the specifics of these of our programs and the mix, but that hopefully gives you a you know, a bit of color on the SG&A. And I guess overall, you know, directionally, I think that this would be the ballpark. Of course, you know, as we expand our coverage, you know, you can see that, you know, increasing, but not, you know, not significantly. I think this would be in the range of what we are planning for year on year. going after the indications that we currently are pursuing.

Got it. That's very helpful.

So, we hope to see, I guess – sorry, Greg, just one last thought. So, we will see the leverage in the years going forward, right? So, yeah.

Understood. On payer coverage, you made some comments. Curious where coverage stands, if you can comment on that in terms of covered lives and how you expect coverage to evolve this year if you have a target for covered lives by year-end. Just any additional color there would be helpful. Thank you very much.

Yeah. Greg, as you're aware, this is an important and critical area. And we, you know, we're having – We're committed to supporting meaningful patient access and to bring this more affordable ACTH therapy to both government and commercial payer plans, prescribers, and patients. We are in ongoing discussions and are encouraged by the discussions we're having with payers as well as the pharmacy benefit managers or PBMs.

And we look forward to sharing more details in the future. Thank you.

And we will take our next question from Elliot Wilbur with Raymond James.

Your line is now open.

Thanks. Good morning. First question or questions for Steve. Getting a lot of inbounds in terms of clients asking us to help sort of bridge the gap between EBITDA run rates, top line run rates exiting 3Q and 4Q and the initial drop 2022 guidance. And the simple question is this. When the Novidium deal closed, you guys talked about a pro forma EBITDA run rate for the first nine months of around 66 million, which would work out to about almost 90 million on an annualized basis. And then the full year guide for 2022 is 70 to 75 million. I'm having a little bit of difficulty bridging those two numbers, even allowing for step up in erosion in the base business. So can you just sort of help reconcile those two numbers for me and think about what some of the various moving parts may be?

Yes, sure thing, Elliot, and good morning. Yes, so just to... just to refine the, uh, the, the back of the envelope math that, that you've done, um, on a pro forma basis, the, the, um, the company, uh, is producing about $86 million of EBITDA. Um, and if I look at the fourth quarter run rates and, and kind of do the times for math, right. That I think many of your clients, um, are probably doing, um, It really comes down to the couple of factors that we've discussed. One is continued pricing erosion in the generic space. The environment is absolutely tougher today than roughly this time last year when we announced the Movidium transaction. So that placing impact on the company's plan and the resultant guidance is more significant. And then, again, just the continued erosion in the established brand business. Those two factors together, right, when you have they combine for a pretty significant negative mix, negative price and negative mix because the generic business is growing and the established brand business is declining. And so we're seeing, you know, meaningful compressions in the gross margin percentages. That really is the bulk of the story. On the expense side of the equation, when I look at the fourth quarter pro forma run rates compared to guidance, You know, we're essentially projecting relatively flat spend both in SG&A and R&D. So it really is that gross profit effect on the EBITDA line.

And just to build on what Steve said that with the full year number, I think there was non-recurring events in 2021. which is the escargot royalty and certain non-recurring milestones for NVIDIA and CDMO business that were substantial, and that's what's reflected in the overall full-year number.

Right. So if you, yeah, great point, Nikhil. If you adjust for those items, Elliot, the combined pro forma business would be, you know, in the low 70s. EBITDA generation.

Oh, okay.

Okay, so not the mid-70s.

Yeah, so remember in the 86, right, remember that A&I in the first quarter of last year had $11 million pick up from the final YesGuarda

royalty closeout. So that takes 86 to 75. And then in the NVIDIA portfolio, remember they have a bit more of CDMO arrangements that are more focused on the development side of the equation as the base A&I CDMO, which is kind of more plain vanilla manufacturing portion. So in the Navidium portfolio, when you look at quarterly performance, there can be a little bit of chunkiness in terms of milestone achievement and certain triggers for revenue on their CDMO side of the house. So if you were to adjust for a couple of those events, you would take that 75 down into the low 70s, probably 72-ish.

Okay, understood. I guess I just wasn't making those adjustments. The follow-up question with respect to cortrophin and formulary placement and initial coverage, I understand that this is still kind of in the early stages here, Nikhil, but maybe you could just help us think a little bit about your expectations in terms of formulary placement. I mean, you're starting to see various coverage policies appear, and honestly, they're kind of all over the place. I mean, we're seeing cortofin placed on, you know, Tier 3 with prior authorization required, similar to ACTHAR, and then we've seen it all the way down to where it's actually bumped ACTHAR from formulary altogether or where you know, the payers are requiring step-through therapy with quatrophin before patients can eventually get on Actrar, assuming that they do, which obviously is quite favorable for you guys. But I'm trying to think about, like, where, as all these coverage policies evolve and, you know, enter the public domain, like, you know, sort of what's a reasonable expectation, I guess, in terms of where you expect the majority of coverage to fall for cartrofen.

Thank you, Elliot.

We are committed to supporting meaningful patient access that's reflected in the more affordable ACTH therapy that we've brought to both government and commercial peer plans. And as I said before, we're very encouraged by the ongoing conversations. I prefer to steer clear of the details, but I understand the ask, and I look forward to sharing more about the specifics of lives covered, what formula status have we achieved, and giving you more specifics in future conversations.

Okay, and just maybe last question in terms of just quick clarification question. So with respect to first quarter 2022 financials, fair to assume that you'll recognize revenue for all quattrofen shipments into the distribution channel?

Yes, Elliot, that's correct. Yep. Okay. Those are my questions. Thank you.

We have no further questions on the line at this time. I will turn the program back over to Nikhil for any additional or closing remarks.

Thank you. Thank you, everyone, for joining us on the call this morning.

We appreciate your support as we move forward on our path of bringing high-quality medicines to the patients who need them and delivering shareholder value. While 2021 was a momentous year for ANI, it's only the beginning.

Thanks again, and stay well.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.