ANI Pharmaceuticals, Inc.

Good morning, everyone, and my name is Ashley, and I'll be your conference operator. At this time, I'd like to welcome everyone to A&I Pharmaceutical's fourth quarter and full year 2022 financial results. Our lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. At that time, if you have a question, please press the star key followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded today, March 9th, 2023. It is now my pleasure to turn the floor over to Ms. Judy DiClemente, Investor Relations for A&I Pharmaceuticals. Please go ahead.

Thank you, Ashley. Welcome to A&I Pharmaceuticals Q4 2022 Earnings Results Call. This is Judy DiClemente of Insight Communications, Investor Relations for A&I. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer, and Stephen Carey, Chief Financial Officer of A&I. You can also access the webcast of this call through the Investors section of the A&I 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 FCC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. A&I 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 9, 2023. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Nikhil Lalwani. Nikhil?

Thank you, Judy. Good morning, everyone, and thank you for joining our call. 2022 was a landmark year for A&I, taking us past critical inflection points for our two critical growth drivers, our rare disease business with the successful launch of our foundational asset, purified cortofan gel, and our generics business with the acquisition and integration of Nividium, a best-in-class generics R&D organization. The significant achievements of 2022 further strengthen ANI to deliver sustainable, competitive, and profitable growth. We keep the patient at the center of everything we do and remain deeply committed to providing high-quality medicines to patients in need. I'm proud to report that for the full year 2022, ANI revenues totaled $316.4 million, surpassing the $300 million mark for the first time in the company's history. This is an increase of over $100 million and 46% year over year. In the fourth quarter, revenues grew by nearly 55% to $94.2 million, a company record for quarterly revenues. We delivered remarkable growth in adjusted non-gap EBITDA. from $4.3 million in the first quarter of 2022 to $23.3 million in the fourth quarter. Let me now turn to the two strategic imperatives that we need to remain focused on to drive sustainable, profitable, and competitive growth in 2023 and beyond. The first imperative is scaling up our rare disease business. Our foundational asset purified cortisone gel has experienced great momentum through the first year of launch. As you would expect, we made tweaks in our strategy as the launch unfolded. We are pleased to report that the fourth quarter sales totaled $17.6 million, and for our first year of launch, total sales were $41.7 million. Importantly, according to IQVIA, the ACTH class of therapy has gone from consistent year-on-year declines to year-over-year unit growth for the first time since 2019. From June 2022 to January 2023, the ACCH category has seen eight consecutive months of year-on-year growth. As of March 8th, cumulative new patient cases initiated increased to more than 1,120, with more than 510 unique prescribers. We are pleased that we have continued to see growth in the number of new unique prescribers and an increasing number of healthcare providers becoming repeat prescribers. Overall, we have seen prescriber interest in having an alternate treatment in the ACTH category continue to build. Many of our prescribers had previously slowed or discontinued use of the ACTH class and have restarted their use of ACTH therapy after the launch of purified corticofin gel. Prescriptions continue to be distributed across our targeted specialties, which include certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis and excess urinary protein due to nephrotic syndrome. We have actively participated in the key national and regional medical conferences and have also initiated peer-to-peer programs across these specialties to educate physicians, to increase awareness and understanding of cortofan gel. Our peer-to-peer education programs have been well received with positive early feedback. We have invested and are continuing to and are continuing our efforts with the PDMs and payers across commercial, Medicaid, and Medicare to expand market access for cortofan for the appropriate patients in need. In addition, we have further strengthened our patient services and reimbursement teams to support access to cortofan gel and reduce the time taken from enrollment to fulfillment. In parallel, we have taken several initiatives to increase effectiveness of our highly experienced sales force. In 2023, we will augment these efforts with enhanced data to improve prescriber targeting. With the momentum from our launch, we will also commence modest expansion of our sales force to focus on pulmonology. Looking ahead, And as Steve will discuss shortly in more detail, we expect 2023 revenue from cortofan gel to be in the $80 million to a $90 million range, and the cortofan SGA increase to be estimated at approximately 10%. We believe that ANI has built a rare disease platform successfully, encompassing medical affairs, patient support, market access, and specialty pharmacy distribution. The success of our foundational asset, Purified Cortofan Gel, has given the company confidence, and we are actively exploring assets to acquire or partner on to leverage the platform and scale of the rare disease business. Before I move on to our generics business, I would like to share an important point. During the early days of the launch, we believed it was important to share detailed metrics to give investors insight into the dynamics of and progress of our launch. As the Cortofin launch has gathered momentum and investors have gained further confidence, we have decided to pare back sharing competitively sensitive detailed metrics such as number of prescribers and patient cases initiated. Moving now to our second strategic imperative, driving generics business growth to superior new product launch execution, cost excellence, and supply reliability. Sales of our generics pharmaceutical products grew 46% year-on-year. We launched several limited competition new generics and retained a top 10 ranking in terms of ANDA approvals. In addition, ANI continues to retain the second ranking for competitive generic therapy approvals. This is especially impressive given the scale of our genetics business and the large number of companies that compete in the U.S. genetics market. In 2022, we filed 12 ANDAs and expect to continue investing in genetics R&D to support our growth aspirations. We are also making large strides in the area of cost excellence. The consolidation of our manufacturing network is on track. Manufacturing operations ceased at the Oakville interior site in January 2023, and the relocation of Oakville products to U.S. facilities have been completed. We are in active discussions with potential buyers for the Oakville site. And once fully executed, this operational efficiency is expected to improve GAAP profitability and cash flow by $7 million to $8 million on an annualized basis. Looking ahead, we have augmented our analytical and development facility in Chennai, India. The facility completed a successful FDA audit with the FDA in 2022. Today, over 60 skilled colleagues at the facility contribute materially to ANI's efforts to serving patients in need. Over the years, ANI has built a strong reputation as a reliable supplier to patients and customers. We have invested in maintaining healthy inventory levels, both for materials and finished goods. All of our manufacturing facilities are in the U.S., and our domestic supply chain further enhances our reliability as a supplier. Finally, the strong compliance and audit history across our facilities exemplifies our efforts to deliver high-quality medicines. Most recently, during the fourth quarter, the FDA conducted a routine good manufacturing practices audit at our facility in Bonette, Minnesota. We have implemented all corrective and preventive actions needed, and we have already received a favorable establishment inspection report, or EIR, classifying that our Bonette facility is voluntary action indicated, BAI. I am proud of the dedicated work of our employees in our genetics business, with over 20 million prescriptions filled using ANI medicines. In summary, 2022 was a landmark year for ANI, taking us past a critical inflection point for the key driver of ANI's growth, scaling up our rare disease business. In 2023, we look forward to building on the launch momentum of cortofan gel and acquiring or partnering on other assets that leverage our rare disease platform. Steve will now walk through our detailed fourth quarter financial results and discuss our guidance for the coming year. Steve?

Thank you, Nikhil. And good morning to everyone on the call. My comments this morning will be focused on the three months ended December 31st, 2022 versus the prior year, unless otherwise noted. First off, as Nikhil indicated, 2022 has been a transformational year as we successfully operationalized the purified cortofan gel launch and integrated the November 2021 acquisition of Navidium into our overall operation. These two platforms for growth drove ANI's full-year revenue to $316.4 million, marking the first time in ANI's history that our full-year revenue has surpassed $300 million. This represents 100 million or 46% growth over the 216.1 million reported in 2021 and establishes a new base as the company continues its growth trajectory. This full year achievement was built upon strong sequential quarterly growth, accumulating in 94.2 million of revenues for the three months ending December 31st, 2022. Up 33.3 million or 54.7% as compared to the prior year period driven by strong gains in both of our operating segments. Revenues from purified cortofan gel led the way with 17.6 million in revenues in the quarter. Revenues of our generic established brands and other segments were up $15.7 million or 25.8% over the prior year, driven by gains in our generic pharmaceutical product line, which was up $16.4 million or 39% year-over-year. This increase was principally driven by revenues from multiple 2022 new product launches, and partially tempered by a decrease in revenues from sales of several legacy A&I generic products. Contract manufacturing revenues were $4 million during the fourth quarter of 2022, up 45.9% from the $2.8 million posted in the prior year period, primarily related to the addition of NVIDIA contract manufacturing revenues. Royalty and other revenues were $1.9 million in the current year quarter, in line with prior year levels. Temporary needs growth drivers were net revenues for established brand pharmaceutical products at $12.7 million during the three months ended December 31st, 2022. This represents a decrease of 13.3% compared to the $14.7 million for the same period in 2022, driven by lower aggregate unit volumes across the portfolio. Operating expenses increased by approximately 9.2% to $92.4 million for the three months ended December 31st, 2022, from $84.7 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $2.4 million to $36.3 million in the fourth quarter of 2022, compared to $33.9 million in the prior year period, primarily due to increased sales volumes of generic products and sales of purified cortofan gel. Excluding the impact of acquisition accounting, stock compensation, and the effects of our Oakville Ontario plant closure, all of which are detailed in the tables contained in this morning's press release, cost of sales on a non-GAAP basis as a percentage of total net revenues decreased 7.3 points from 45.7% in the fourth quarter of 2021 to 38.4 percent in the current year period, primarily as a result of favorable mix from the impact of sales of purified corticone gel, coupled with the impact of new product launches in our generic franchise. These favorable impacts were partially offset by lower sales of established brand products in the period. Research and development expenses were $5.2 million in the fourth quarter of 2022, an increase of $2.1 million from prior year, primarily due to expenses related to an increased level of generic research and development activities during the current year period. Selling, general, and administrative expenses increased by 8.1%, to $33.2 million in the fourth quarter of 2022, compared to $30.7 million in the prior year quarter, primarily due to a $3.9 million increase in sales and marketing expenses related to our launch of Purified Cortropin Gel, a full quarter's worth of Navidium headcount and activities as compared to a partial quarter in the prior year, and increased infrastructure to support the growth in our business. These effects were partially offset by a $4.3 million decrease in transaction expenses related to the Navidium acquisition. Depreciation and amortization expense was $14.5 million for the three months ended December 31st, 2022, compared to $13.7 million for the same period in 2021. an increase of $0.8 million primarily due to the amortization of intangible assets acquired in the NVIDIA acquisition. We recognized $1.6 million of restructuring expense in the fourth quarter of 2022 associated with the closure of our Oakville, Ontario facility. Costs included $0.3 million in termination benefits, and $1.1 million in fixed asset accelerated depreciation. No restructuring activities were recognized in the prior year period. We have excluded both the one-time charges resulting from this action, as well as the portions of the Canada results that are expected to be non-recurring post-closure from our non-GAAP financial measures as detailed in the tables in this morning's press release. During the quarter ended December 31st, 2022, we also recognize the non-cash fair value adjustment of 1.6 million related to the contingent consideration recorded in conjunction with NVIDIA purchase accounting. Our 28 cent gap net loss per share for the quarter reflects significant amortization and purchase accounting related charges from the Navidium acquisition, coupled with the sales and marketing expense behind our initial commercial launch of Coltropin and Oakville-related restructuring activities. On an adjusted non-GAAP basis, we had diluted earnings per share of 76 cents for the quarter, compared to 6 cents for the prior year period. Adjusted non-GAAP EBITDA for the fourth quarter of 2022 of 23.3 million, more than tripled as compared to the 7.2 million posted in the fourth quarter of 2021. And on a sequential basis, was up 4.9 million from 18.4 million in the third quarter of this year. Also, please note, as disclosed in the footnotes to Tables 3 and 4 to this morning's press release, beginning in the fourth quarter of 2022, ANI no longer excludes expense for in-process research and development, Cortrofin prelaunch charges, and Cortrofin sales and marketing expenses from its non-GAAP results. Historically, the company excluded these charges, These changes have been made to align with views expressed by the U.S. Securities and Exchange Commission. Prior periods have been recast to reflect these changes. From a balance sheet perspective, we exited the year with $48.2 million in unrestricted cash and cash equivalent and $297 million in face value of outstanding debt, which is due in November of 2027. As expected, full year 2022 was a heavy cash utilization year, with $31.2 million of cash used in operations as we invested behind the rare disease platform and had significant build of working capital due to rapidly accelerating sequential net revenues. Finally, with this morning's press release, we are instituting 2023 guidance. Total company net revenue between $360 million and $385 million, representing approximately 14% to 22% growth, as compared to $316.4 million recognized in 2022. Cortropin-specific revenue guidance of between $80 million to $90 million, representing 92% to 116% growth as compared to 41.7 million recognized in 2022. Total company non-GAAP gross margin between 59.5% and 61%. Total company adjusted non-GAAP EBITDA between 78 million and 88 million and adjusted non-GAAP diluted earnings per share between $2.09 and $2.59. In addition, we currently anticipate between 16.8 million and 17.1 million shares outstanding and an effective tax rate of approximately 24 percent prior to any federal tax reform. We will now open up the call to questions

operator please announce the instructions certainly at this time if you would like to ask a question please press star one on your touchstone phone you may withdraw your question at any time by pressing star two once again that is star and one and we will take our first question from elliot wilbur with raymond james please go ahead thanks good morning uh first question for

Nikhil and Steve as well, I guess. Just thinking about expectations with respect to the base business, Generics, Legacy, Brands, backing out the numbers, looks like you're expecting growth in mid to high single digits. and just wondering what the assumptions are as far as new approvals, new launches. Should we be expecting a similar pattern to what we've seen over the past 12 months where we kind of see a steady cadence of smaller products coming out of the legacy Novidium pipeline? And is there anything that you could offer up in terms of visibility around any date-certain or larger products launch opportunities that might enhance confidence in your modest growth expectations for that component of the business?

Sure. Thank you, Elliot, and good morning. Look, I think the 2023 launch cadence will be similar to 2022, where it's a, as you two use the words, a steady stream of launches. I think that over time the scale of those steady stream of launches will increase. But to the other part of your question, there isn't a date certain or a, you know, a large launch to sort of point to, you know, there are some sort of relatively larger launches, but nothing that stands out as a, you know, substantially larger than everything else in terms of concentration of new product launch revenues. We currently don't see that. But that's not factored into as an assumption into our guidance for the base business and our overall guidance.

The other thing I would add, Mikkel and Elliot, and good morning, Elliot, is just as we look and unpack the different elements that roll up into that segment, I would say we're expecting the growth in that segment to be led by the generic platform and, you know, decline year over year in the established brand side of the business and the contract manufacturing side of the business.

um so there's a you know a little bit of mix rolling up into that uh into that segment uh observation that you made okay thanks but maybe just a couple quick financial questions for yourself um steve just anything specifically you can or want to say about the kind of it looks like the implied step up and sgna and r d spend um so most of that is is targeted to the expansion of cotrophin call activities, but anything else that you could say there in terms of more specifics would be helpful. And then you referenced working capital investment over the course of 2022. Looking at your adjusted net income expectations based on some of the outlook items that you've offered. I mean, looks like you guys are looking for around 40 to 45 million in adjusted net income. Anything you could say with respect to anticipated cash conversion ratio there? I'm guessing maybe you would expect to actually overperform more than 100% cash conversion, but I just wanted to bounce that off you and see if there's anything you can give us in terms of expected cash conversion operating cash flow generation in 2023. Sure.

Yeah, sure thing. Yeah, and while we're not offering specific SDNA and R&D guidance this morning, obviously the implication and the reality is that both of those line items will be growing year over year. On the R&D side, it will be, you know, continued investment and increased investment in the R&D platform, you know, principally on the generic side. Obviously, the companies made a very significant investment in the NVIDIA platform, one that we're extremely happy with. And you can see the clear impacts of the performance of the NVIDIA platform in 2022. And so, right, we're focused on continuing to build and expand upon that platform. And then on the SG&A side, right, a touch driven by continued investment in the rare disease platform and year two of the purified corticogel launch. As Nikhil had indicated in his prepared statements, we see that direct investment in rare disease, SDNA, you know, around a 10 percent increase year over year. And then the other aspects of SDNA, right, are just as the company is growing, right, at such a fast clip, you know, obviously, the support structure, the supporting functions, you know, naturally grow around that growth in the business in order to adequately support the company and its objectives. And so, And that's something that's been happening throughout the course of 2022. And so there's, you kind of start off the year with an annualization effect of bills and decisions that were made in 2022. And then, you know, a touch more layered in as we envision continued growth across our two growth platforms. On the topic of cash, yeah, as we look forward to 2023, you know, we definitely envision getting back to positive cash flows, you know, the cash flows in 2022. were expected to be cash use year as we stood up the rare disease business, right? If you unpack the performance on a quarterly basis, again, in 2022, right, as you have, the rare disease and machinery up and running essentially from day one, January 1st of 2022, yet you have sequential revenues, right, going from 1 million in the first quarter to over 17 million in the fourth. So that's a very significant effect. uh in terms of um cash use uh and then as uh cortofin reaches break even um and as we look forward to 2023 we very much uh anticipate returning to favorable cash flows um on a total company basis um i'm not gonna specific uh specify versus your um assumed 45 million of uh operational uh but i would i would tell you um you know we do expect uh reasonably strong cash flows in 2023 and then building off of that base okay just one last question around cortofan nikhil is the um expansion of salesforce specifically targeted towards

the pulmonologist community or would also enable you to enhance the frequency or, you know, expand the breadth of your curling, your current calling pattern. And historically, I seem to recall the pulmonology indication accounting for roughly 15 to 20% of the dollar value of the Actbar franchise. And I just wanted to and see if that's sort of consistent with your read into that particular segment of the market as well. Thanks.

Yeah, thanks, Elliot. I think on your point on sales expansion, you know, we're trying to find a balance between sharing information to assist the investment community while not giving away competitively sensitive data. with that understanding. Pulmonology is, you know, a critical part of the expansion. However, we may, you know, we may go beyond that too, right? But I think in terms of sharing, I think pulmonology is the area that we'd like to share. And, you know, in terms of how much of ACT-R sales it is, look, it's material enough for us to, as a sector or an indication for us to say, hey, we'll have, you know, dedicated sales force for it and, you know, in terms of expanding and to reach those patients.

Okay, we'll take our next question from Rameel Devon with Guggenheim Securities. Please go ahead.

Great. Thanks for taking the question. So maybe just a couple more following up on the Cortofin launch, and I appreciate your comments on it. not wanting to share too much competitive information, but a couple of questions just following up on what you did say. Can you maybe just comment a little bit on what you're seeing sort of in the field as physicians are sort of deciding between corticopin gel and competing options? It's nice to see the growth return to that market, but in terms of differentiation, what is sort of driving the decision you've made? And then just the second one, again, as much as you're willing to share kind of based into your guidance or any comments on what you're assuming around gross to net would be helpful just for us if you want to comment. Thanks.

Good morning, Vimal, and welcome to your first E&I earnings call. Two questions on the growth of the net. We are, again, back to the competitive point, we're not sharing that information at this time. And then in terms of dynamic with prescribers, we are continuing to see growth both in the number of unique prescribers. or new unique prescribers, as well as, you know, healthcare providers becoming repeat prescribers. They use it, they see the benefit, and then they use it. And then the other thing to share is that we've seen the prescriber interest in having an alternate treatment in the ACTH category continue to build. And many of our prescribers had previously slowed or discontinued the use of the ACTH class you know, prior to our launch. And then once we've launched and, you know, as we created awareness around chlorpropan gel and the ACTH class, you know, they've restarted their use of ACTH therapy. Of course, all of this is for the appropriate patients in need. And when you think of that, right, and this is why the point on the class and the growth in the class, eight months, according to IQVIA, year-on-year growth on a monthly basis, sorry, monthly growth from a year-on-year basis. I think as you think of that, I think the important point to bear in mind is that if you look a few years ago, the number of patients that were benefiting from ACTH therapy was significantly higher than where we are today. And so that tells you that, again, as we're seeing this class growth, that that is, you know, that the prescriber interest in ACTH class and for appropriate patients is, you know, continues to build.

Okay. All right. Thanks so much for the insights. Thank you, Lamar.

And we'll take our next question from Greg Fraser with Truist Securities. Please go ahead.

Hey, good morning, folks. Thanks for taking the questions. Can you comment on the competitive environment? I'm not sure if I missed that. And just what you're seeing from the incumbent in terms of strategies to defend this business.

Yeah. Just cut to the chase. And good morning, Greg. Look, we're, again, trying to find balance between sharing information that's helpful to the investment community while not giving away competitively sensitive data We know that our competitors are listening in to this call. And I think, look, from the way we see it, you know, and obviously they did comment on this publicly, you know, I think the day before yesterday and then also a week ago, that they're seeing stabilization and the demand and growth in the overall class and that they believe, and I think we're all about trying to, you know, increase the number of patients that can, you know, appropriate patients that can benefit from this therapy, right? And I think that's it. I think, yeah, that's what I feel comfortable sharing at this time.

Got it. This may fall under the same competitive sensitivity. but can you talk about the number of thoughts that you've been calling on and how that number, how the number of prescribers, the 510, compare with the overall call universe?

Yeah, definitely competitively sensitive information, so we'll be staring, we'll be staring clear of that. Thank you for understanding the mill.

Great. Understood. Okay. What about just the new patient starts? Are those, Have those been ramping similarly with the case initiations? I guess I get that our payer approval is coming through.

Right. Yes, I think that the new patient starts are ramping, and I think one of the things that we will see in 2023 is that the new patient starts in Q4 will continue to, depending on what kind of indication they're on, You know, the refilled vials will keep sort of coming from those. So our team obviously is focused on increasing the awareness and understanding of cortofan gel. And, you know, there are, as you were pointing out, there's a number of factors that drive from the number of cases initiated to cases that meet the prior authorization criteria and are approved by the insurance plans and the time to dispense of the first vial. And then there's also a variation in terms of the indication mix, right? So how many MS patients versus RA patients versus lupus patients versus nephrotic syndrome patients. And the number of vials used for each indication varies. And also then patients getting vials through our patient assistance program.

Thanks for the call. One more question. When do you expect the operational efficiencies from the consolidation of the manufacturing network to fully materialize? Thank you.

I can grab that one. Yeah, good morning, Greg, and thanks for the insightful question. Yeah, the full gap impact and, most importantly, the cash flow impact from consolidating manufacturing and closing of the Oakville facility will start to accrue into the results in 2023. Our operational plans to wind down the facility have tracked very much according to plan and we are in the final days of manufacturing completed early this quarter, and we're in the process of moving and selling off certain fixed assets, et cetera. So we're in the final days of the wind down plan as we speak. So that cash flow impact will start to accrue in 2023. And certainly GAAP results on the P&L will accrue in. As you know, Ray, on the non-GAAP results, in the non-GAAP EBITDA and non-GAAP EPS. We've been adding back certain portions of those savings, the impacts of non-recurring costs on the CDMO side in Canada. We've been adding those back since the second quarter of 2022. So a portion of that impact and effect is already reflected in the non-GAAP results.

Before we move on, Greg, I think just coming back to your question on competitive dynamics, you know, just to be, again, to try and be helpful to the investment community, I would point you to, you know, the fact that according to IQVIA, eight months consecutively we've seen year-on-year growth in the class. So that's one data point. You also see the, you know, the relative market share. That's another database in the public domain. And then the third one is claims, you know, tracking the claims. And that gives you another data point. And finally, obviously, you see, you know, the published price. I think these are three or four data points that are available in the public domain that can be helpful to point to the competitive dynamic. And again, the overall, as we see it, right, that the, number of patients that were on ACTH therapy three to four years ago was much higher than where they are today. And, you know, we're increasing awareness and understanding of corticofan gel, you know, to find the appropriate patients in need.

That's helpful. Thank you.

Yeah, thanks, Frank.

And we'll take our next question from Brennan Foulkes with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my question, and congratulations on all the progress in 2022. I do just want to come back to the cash flow conversion and generation. So you reported adjusted EBITDA, I think, of 56 million, operating cash burn, I think I heard you say, Steve, of 31 million. Can you just elaborate on the moving pieces regarding cash flow generation in 2023? I did hear you talking about getting back to cash flow generation and, you know, strong cash flow generation at that. But just maybe help us bridge that $87 million gap between adjusted EBITDA in 2022 and operating cash flow. Is it really just interest payments and working capital build? And then, you know, why should we not expect to continue to see a working capital build in 2023, albeit perhaps lower in 2022? But just given the growth trajectory, one of your 23 guidance may maybe you know, what we're all expecting for 2024. I know that's a lot in there, but maybe just tack on top of that, then, you know, how is your flexibility to bring in additional assets as you finance this organic growth and service the debt? Thank you.

Yep, thanks, Brendan. Yeah, I think, like, the biggest part of the bridge that you described is the change in working capital, right? And I think... you have to understand that there's been extreme acceleration in uh sequential performance both quarterly right if you look at the quarters obviously out in the the public domain right uh the the company posted 94 million in sales versus 64.5 in the first quarter of this year um and when you look at that you know year over year as we said on the on the call right uh fourth quarter revenues are up up $33 million year over year. And so At the December 31st balance sheet, a large portion of that sales gain year-over-year is sitting in AR. On top of that, on the inventory side of working capital, we've had a tremendous expansion of the business across both lines. On the generic side, obviously, we've launched over 20 products in 2022. So there's working capital builds on inventory to support those product launches and obviously the effect on AR, as we discussed. And then on the purified quatrophan gel side, right, that's a product where, right, supply chain is extremely important and, you know, the production of inventories there, you know, kind of happens, you know, more periodically, right, given the specialized nature of that product. So you can have a lumpiness in the inventory purchases on the cultural side. So those impacts are very real. And there and, you know, they're very significant when you look at that quarterly progression. And as you could imagine, right, if you were to unpack the fourth quarter. especially for those growth platforms, right? There tends to be sequential growth within the month as well. Well, you know, turning the – and then on total company cash flows, right, obviously the second biggest bill, if you will, in 2022, you know, is on, you know, debt financing and servicing the debt finance bill. So that costs just shy of $24 million on interest. and then $3 million of debt principal pay down. So those are the biggest impacts. um of cash flow in 2022 as we look forward to 2023 you're correct we do expect to have continued sequential bills um i think um right but the the impacts of the overall growth in the business in 2022 uh will start to manifest more in the uh in the cash flow and in the cash balance And so we do expect that, right, as absolute growth percentages moderate a touch, right, we do expect that working capital component to be less severe than it was this year.

Just one other thing to add, Brendan, and good morning, is that, you know, we also have the sale of the Oakville facility as a positive cash flow item.

to think about. Great. Thank you very much to both of you. Very helpful and congrats again on the progress. Thank you, Blake.

And we'll take our next question from Oren Lisner with HC Wainwright. Please go ahead.

Thanks. I have a couple. On cortisone, I understand you have to be keeping close to the vest competitively here, but just in general on approval of coverage trends, are those timelines shrinking materially? And you discussed you're continuing to work to improve coverage and access. So how would you characterize your, I guess, without specifics, but just your relative positioning to Axar, you know, at launch and now. And should we expect any material changes in Q1, whether normal seasonal headwinds from resetting of plans in prior offs, et cetera, or actual potential tailwinds with new coverage winds kicking in? And I have a follow-up to that.

Yeah. Yeah, good morning, Oren, and thank you for your questions. Yeah, look, again, you know, the specifics on market access and relative coverage positions is clearly competitively sensitive information. I think that, as I mentioned during my preparatory master, we're continuing to work to increase and improve the market access for patients in need, both with coverage decisions as well as with helping through our reimbursement team, you know, just helping to reduce the time from enrollment to fulfillment. I should probably steer clear of getting any further specifics beyond that. Because last time I checked, folks from Malincor were actually listening in to my call.

Yeah, yeah. But in terms of seasonality in Q1, I mean, we normally, especially in rare, expensive drugs, we expect a headwind in Q1. Should we just make the standard assumption that that's the case for your product like most, or in theory, as you're entering your first full year, are you hoping to have new wins?

I think you're exactly right that the, you know, there is a dynamic that's typical for rare disease launches between Q4 and Q1, such as patients searching insurance plans and the impact of that. And I think that ANI's rare disease product will sort of follow suit on that.

Perfect. And you did mention bolstering the pulmonology support. And I think it's pretty vague, but maybe other, I'm assuming you're referring to whatever differentiation you have indication-wise versus ACT-R, which I guess is not competitive information. It's in the labels, so maybe you could talk about it. How material do you view the opportunity and any differentiated indications you have versus ACT-R?

You're right. It is in the label, and we do have differentiated indications versus ACT-R. so we're not sharing anything at this time. And I think the second part on pulmonology, sorry, the other indications, I think, yeah, we pointed you in the direction of the modest sales force expansion in the area of pulmonology, and I think that that's appropriate to share.

Okay. And then just a couple of financial ones or, you know, more operating leverage in 2023. You know, what are the biggest drivers there, you know, in terms of the ranges, bull and bear case scenarios margin wise? Is it just, you know, how much you choose to invest? you know, on the OpEx side, or is there some material variability in the gross margins of the underlying business units? Actually, I think I missed in your remarks, did you give company gross margin guidance there? And on generic specifically, just directionally, given you're launching, expect to launch competitive generic therapies, is it possible gross margins overall in the generic business can increase? in 2023? Or would that be too aggressive an assumption? And should we assume that they're flat at best?

Yeah, good morning, Oren. So, yes, we did comment on total company gross margin profile, and we cited that at 69.5% to 61%, and that would be on a non-GAAP basis. As you think about the different puts and takes and the ranges and the guidance, you know, certainly one of them is just, you know, how the sales mix does play out. As we've talked about in the past, right, purified 4-trophin gel is a favorable input as it grows to our overall company gross margin profile. And, however, you know, there is a touch of headwind year over year. As I had cited in Elliot's question at the top of the Q&A, you know, our kind of other revenues situation, uh categories right um being other and the one that i didn't cite on elliott's uh call which is germain uh is in the area of royalties so you expect uh loyalty income to decline year over year um and obviously loyalty income has a 100 percent gross margin profile um and then as you know right our established brands business which has a high brand margin profile, right, tends to be a declining asset year over year without, you know, business development impact on it. And so there's puts and takes, right, in that gross margin profile guidance. And then the other aspects, right, are just the implied ranges. Again, we haven't given HD&A and R&D guidance, right, but the implied ranges of that kind of total OPEX. And those are in, you know, those are in relatively tight ranges. But, you know, the decisions there, and as we've said, right, we're very focused on continuing to invest behind the two growth platforms. You know, and this is our point of view at a moment in time, right? Obviously, as the year develops and we get, you know, more experience under our belt with the performance and the continued trajectory, you know, obviously we'll update as appropriate.

And can you comment on the directionality of generic growth margins or no?

Yes. Oh, right. Yeah, your question. So I would say gross margins for the generic business can absolutely expand. And the first thing that I would point to you there is just the overall aggregate age of the portfolio. As you know, gross margin profiles and generics would tend to be best at the launch date, and then as competitive pressures kick in as time goes on, you would have margin compression. And so as we're in an era of multiple generic launches, off of the strength of the R&D platform, you know, that lowers the aggregate age of our portfolio and is a positive contributor to the generic gross margin profile.

Great.

And if I may.

No, go ahead, Miguel. Yeah. So, just to clarify or build on what Steve said, he says, that it can expand, but for the, you know, we haven't given specific guidance on the mix, right? We're giving you what the mix of the three is, right? Yeah. Yeah, yeah, yeah.

No promises in generics. Building on Everyone's question is on cash. I'm not an accountant, so I'm sorry if this is a dumb question. But just when we talk about besides the investments and inventory and other working capital investments, when we just talk about accounts receivable and how that's grown over the years, just to clarify, is that really just a function of time? and growth of revenue you know net payment terms and and obviously a rapidly growing top line um or is there potentially any difference in the regular collection cycle with the new orphan business versus the legacy generics is there something unique about uh accounts receivable collections on the orphan side yeah sure so i'll answer the first part is

In 2022, the utilization of cash and what's sitting in AR is largely driven by just the normal cycle and the significantly accelerating sequential growth, again, even within the months, right? In terms of, you know, looking forward and as Sure-Five Quattro Finzel becomes a bigger overall mix of our business, you know, I'll tell you, generally speaking, right, the contractual relationships and contractual terms for that type of branded product, right, are more favorable than the terms that you would expect in the generic business. So that should be another underlying positive factor as purified cortocin gel grows as an overall percentage of our business.

Thank you. That's really helpful. I appreciate your patience with all the questions.

Oh, thanks, Lauren, and very insightful questions. Thank you very much.

And we'll take a follow-up question from Elliot Wilber with Raymond James. Please go ahead.

Thanks. Real quickly, just going back to cortropin, as we think about modeling the trajectory of the product and, you know, treatment curves and persistent trends within your three primary indications, any particular area where you're seeing overperformance perhaps versus the historical ACTH usage pattern? I guess some of the early data suggests that relative usage in nephrotic syndrome is much higher than what we've seen with XR. So I don't know if that's just a function of not enough data points or if, in fact, that's something that you're seeing. as well. And then bigger picture question, as we start to see the ACTH market recover in terms of unit volumes, anything you could say in terms of sort of the patient dynamics there? I understand most of these patients would be sort of new to therapy, meaning they haven't been on either Cutrofen or Actar probably for 12 months. But any perspective you can offer at least at this early stage in terms of, you know, patients who may actually be treatment naive or not previously on ACTH therapies in terms of the mix? And last question, and I'm sure I know the response already, XR labeling is differentiated because it has the infantile spasm indication. Anything you can say about your plans in that area as well? Thanks.

Thank you. Thanks, Elliot. Insightful questions as always. Your question on, you know, are we seeing sort of favorable dynamics on one patient or one indication versus another versus, you know, what ACT-R has historically had. We'll probably need to steer clear of that, that, you know, points in a direction of focus that could be valuable for, so it's competitively sensitive. So that's one. I think on patient dynamics, I think what we can share is You know, there are prescribers who were writing or using the ACTH class, and they had either stopped or reduced their writing considerably. And their interest, as we have driven sort of greater understanding around cortofan gel, awareness and understanding of cortofan gel, we've seen their interest continue to build, and that's, you know, And you can sort of what I can share is, you know, there are prescribers that are, you know, writing their first prescription of corticofan gel, and there are prescribers that are writing, you know, multiple prescriptions of corticofan gel, you know. And I guess what you can see from that is that the patients that they put on corticofan gel, you know, you know, potentially are seeing, right? So I think that they see the impact of that and they make the decision to decide which are the appropriate patients to continue to put on, you know, to put on cortofan gel. I think that's what I can share. And then the last one, and again, you know, these are all dynamics that we are, just to be clear, these are all dynamics that we are you know, we believe are favorable. And therefore, you see that, you know, our guidance for 2023 is 92% to 116% higher. And that's why you see, sorry, 92% is 116% higher than 2022. And that's why you see that the ACTH class has grown month on month, consecutively eight months in a row. And then your third question on the IS indication, yeah, competitively sensitive information. So I just want to say, you know, before we move on, I just want to thank all of you for your patience and understanding as we, again, you know, we're all trying to find that balance between giving the investment community as much information with sharing, you know, competitively sensitive information in a two-player market, right? So.

And there are no further questions at this time. I'll turn the call back over to Nikhil Lawani for closing remarks.

Thank you, Ashley, and thank you, everyone, for joining our call this morning. ANI is well positioned to deliver sustainable growth, and we look forward to updating you on the continued progress. We appreciate your time and interest in ANI, and thank you. Thank you.

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