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spk01: Good day, everyone, and welcome to the ANI Pharmaceuticals, Inc., third quarter 2023 earnings results call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. If you find that your question has been answered, you may remove yourself by pressing star 2. Please note this call is being recorded. I will be standing by should you need any assistance, and if any audio assistance is needed, you may press star zero. At this time, it is my pleasure to turn the conference over to Judy DiComonte with Investor Relations for A&I. Please go ahead.
spk00: Thank you, Jamie. Welcome to A&I Pharmaceuticals' third quarter 2023 earnings results call. This is Judy DiClemente of Insight Communications, Investor Relations for ANI. With me on today's call are Nikhil Rawani, President and Chief Executive Officer, and Stephen Carey, Chief Financial Officer. 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 November 8, 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 Rawani. Nikhil?
spk04: Nikhil Rawani Thank you, Judy. Good morning, everyone, and thank you for joining the ANI Pharmaceuticals Third Quarter Earnings Call, and thank you for your interest in ANI Pharmaceuticals. I would like to express tremendous gratitude to our customers, suppliers, and investors for their strong support of our A&I team and our board as we work tirelessly to fulfill our purpose of serving patients, improving lives. Our time-tested values of teamwork, innovation, integrity, compliance, accountability, commitment to excellence, and always putting the patient first guide us every day as we keep striving for serving patients, improving lives. Turning now to our business performance for the third quarter. Steve and I will share the details of our financial results, the momentum we've built across key business segments, and our overall confidence in the company's ability to drive sustainable, profitable growth. I'm delighted to share that clarity of strategy and very strong execution has enabled ANI to deliver another record quarter for revenue and adjusted non-GAAP EBITDA. This record quarterly performance also allowed us to raise full-year 2020 fee guidance for the third quarter in a row. This morning, we reported record net quarterly revenues of $131.8 million. an increase of 57% over the third quarter of 2022 and up 13% over the record we achieved last quarter. Equally impressive, our adjusted non-GAAP EBITDA was $36.5 million, a 98% year-over-year increase, and our adjusted non-GAAP valued EPS was $1.27, representing a nearly 118% increase over the third quarter of 2022. These results and the Q4 outlook for all segments have allowed us to once again raise our full-year 2023 guidance. We now expect net revenues to be in the range of $468 million to $478 million. Adjusted non-GAAP EBITDA to be between $128 million and $133 million. And adjusted non-GAAP earnings per share to be between $4.29 to $4.57. The midpoint of the revised total company guidance represents remarkable year-over-year growth in net revenues of approximately 49%, adjusted non-GAAP EBITDA of 133%, and adjusted non-GAAP earnings per value to share of 226%. Now, let's take a closer look at our performance and the progress made against strategic imperatives for our key business segments. starting with our rare disease business. We believe our rare disease business will continue to be the largest driver of ANI's future growth. We will deliver this growth through the purified cortofan gel launch momentum as anchor and by adding assets that leverage our rare disease infrastructure and capabilities. Revenues for cortofan gel total 29.7 million in the third quarter, an increase of 136% over the prior year and up 22% compared to the second quarter of 2023. Arthrofen gel continues to accelerate with record quarterly new cases initiated and new patient starts. We also saw increasing momentum with new unique prescribers, including many prescribers who were naive to ACTH therapies. The company's efforts to increase effectiveness of the field sales force and improve awareness of ACTH therapy for appropriate patients have yielded results. The outlook for the overall ACTH category remains robust, with six consecutive quarters of year-over-year growth according to IQVIA. We saw ongoing strength in our targeted specialties of neurology, nephrology, and rheumatology. In addition, we made gains through positive physician response to the company's entry into the pulmonology specialty. Also, during the quarter, we announced the FDA approval and commercial availability of the new 1 mL vial size of cortofan gel, the only approved purified ACTH indicated for the treatment of acute gouty operitis flares. The commercial launch of the 1mL vial for acute gouty arthritis flares is supported by ANI's existing sales force. And while it is still early in the launch, we are already receiving positive physician response. Recently, the company received a specific J-code for control to support physician administration of the 1mL vial. With momentum from our initial three priority specialties, and good progress made with the two new specialties, we are raising our full-year revenue guidance for Kotrofen-Kell to $100 million to $107 million, up from the previous range of $90 million to $100 million. The new range represents year-over-year revenue growth of between 140% and 157% compared to the $42 million recognized in 2022. As we approach the end of 2023 and move into 2024, our company remains actively committed to increasing the scope and scale of our rare disease portfolio through M&A and in licensing by leveraging our financial strength and the rare disease infrastructure and capabilities that we have built. Turning now to our generics, established brands, and other segments, which also delivered strong results during the quarter. by going by 43% year over year to 102.1 million in the third quarter. As with the prior two quarters, we were able to leverage the company's operational excellence and US-based manufacturing footprint to fill the gap in pharmaceutical shortages due to supply chain disruptions. While some of the market opportunities from the past three quarters have softened, we remain poised to capitalize on current and future opportunities as an established and reliable partner of choice for our customers. Our strong R&D organization continued to deliver with five new product launches, including cholesterol hydrochloride tablets, estradiol gel 0.1%, and thyroid tablets. In addition, we filed three new ANDAs and two new 505B2 applications during the quarter. We also retained the number two ranking in competitive generic therapy approvals. Going forward, our aim for the generics established brands and other segments is to remain focused on driving growth to superior new product launch execution, operational excellence, cost competitiveness, and supply reliability with a patient-first orientation. To support the ongoing growth of this segment, the company has invested in expanding the manufacturing footprint and capacities at the New Jersey site and expect these to be operational by early 2024. With all that we've put in place during 2023 across all areas of the business, we are confident in our ability to build a sustainable biopharmaceutical company, serving patients, improving lives. I'll now turn the call over to Steve, who will walk through our third quarter financial results and revise guidance in more detail.
spk02: Steve? Thank you, Nikhil, and good morning to everyone on the call. As Nikhil indicated, we posted very strong results in the third quarter of 2023. We saw growth across our core businesses generating record third quarter revenues of $131.8 million. This represents $48 million or 57% growth over the $83.8 million reported in the third quarter of 2022. and a 13% sequential increase from the $116.5 million of revenues reported in the second quarter, which had been the company's previous record. Revenues from Cortofin reported in our rare disease segment were $29.7 million in the quarter, up 136% from the prior year. Revenues of our generic established brands and other segments rose $30.9 million to $102.1 million, an increase of 43% over the prior year. Net revenue gains across the segment reflect increased volumes on the base business, annualization of 2022 launches, and new product launches in 2023. From a product perspective, performance was driven by revenues from year-over-year gains in products such as Cholestepol, famotidine, mixed amphetamine salts, extended relief, nitrofurantoin, and thyroid, tempered by a decrease in revenues of phenofibrate, nabivalol, and prozosin, among others. As Mikhil mentioned earlier, Our strong commitment to U.S.-based manufacturing and excellence in generic R&D, procurement and sales, and marketing have enabled ANI to meet market demand for key products in the face of competitive supply chain issues throughout the first three quarters of this year. The market conditions for specific molecules have changed recently, And as a result, we currently expect fourth quarter established brand revenues to be significantly lower than that that we are reporting this morning for the third quarter of 2023. We do expect to see ongoing sequential growth in generic revenues. However, it will be tempered by declines in certain molecules. Importantly, The steps that we have taken to enhance the capabilities of A&I have increased our ability to service these supply chain disruptions and our business is well poised to meet current and future opportunities as they arise. Operating expenses during the third quarter increased by 28% to 113.9 million for the three months ended September 30th, 2023 compared to $88.8 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $15.2 million to $48.1 million in the third quarter of 2023, compared to $32.9 million in the prior year period, driven by significant growth in sales volumes of generic and rare disease pharmaceutical products. Research and development expenses were $11.1 million in the third quarter of 2023, an increase of $3.5 million from the prior year period, primarily due to $1.6 million in expenses related to a 505 filing and a higher level of activity associated with ongoing and new projects in the current year period. Selling general and administrative expenses increased by 40% for $42 million in the third quarter of 2023, compared to $30.1 million in the prior year period, primarily due to increased employment-related costs, as well as an overall increase in activities required to support the significant growth in our business. Depreciation and amortization expense was $16.2 million for the three months ended September 30th, 2023, an increase of $1 million from the prior year period. During the quarter, we recognized the gain of $2.6 million arising from the NVIDIA contingent consideration fair value adjustment compared to a loss of $2.5 million in the prior year period. primarily due to a change in the anticipated cash flows, specifically extending the timeframe over which cash flows will be generated by the product and the passage of time, as well as an increase to the probability of payment for the product development-based milestone payments. Regarding the closure of our Oakville, Ontario, Canada manufacturing plant, there was no P&L impact in the current year period as our restructuring activities are essentially complete. This is compared to 1.5 million of restructuring expense recorded in the prior year period. On November 6th, 2023, we entered into an agreement for the sale of the site for a total sale price of 17.85 million Canadian dollars or approximately 13 million U.S. dollars based on the current exchange rate. Closing of the sale is currently expected to occur in the first quarter of 2024. Net income available to common shareholders for the third quarter of 2023 was 9.5 million as compared to a net loss of 9 million in the prior year period. Diluted GAAP earnings per share was $0.45 as compared to a $0.55 loss in the prior year period. On an adjusted non-GAAP basis, we had diluted earnings per share of $1.27 for the quarter compared to $0.58 per share in the prior year period. Adjusted non-GAAP EBITDA for the third quarter of 2023 reached a new company record of 36.5 million and reflects gross profit pull-through from the strong revenue performance. This is an increase of 18.1 million compared to the 18.4 million posted in the prior year period. Adjusted non-GAAP EBITDA also rose 2.4 million on a sequential basis up from our previous record $34.1 million recognized in the second quarter of 2023. From a balance sheet perspective, we ended the quarter with $193.1 million in unrestricted cash, driven in part by cash flow from operations of $32.1 million during the quarter ended September 30th, 2023. On a nine-month year-to-date basis, we have generated 74.2 million of cash flow from operations. We have 294.8 million in face value of outstanding debt, which is due in November of 2027. As of the balance sheet, our gross leverage is 2.3 times And our net leverage is less than one time trailing 12-month adjusted non-GAAP EBITDA of $126.9 million. Finally, as Nikhil mentioned and as outlined in this morning's press release, we are pleased to raise full year 2023 guidance as follows. We are raising total company expected net revenues to be between $468 million and $478 million, up from the previously issued guidance of $425 million and $445 million, representing approximately 48% to 51% growth as compared to the $316.4 million recognized for full year 2022. we are raising total company adjusted non-GAAP EBITDA to be between 128 million and 133 million, up from previously issued guidance of 115 million and 125 million, representing approximately 129% to 138% growth, as compared to the 55.9 million recognized in 2022. we are raising total company adjusted non-GAAP earnings per share to $4.29 to $4.57, up from the previously issued guidance of $3.62 to $4.11, representing approximately 215% to 236% growth. as compared to the $1.36 reported in 2022. We are raising quatrophin-specific revenue guidance to be in the range of $100 million to $107 million, up from previously issued guidance of $90 million to $100 million. representing 140% to 157% growth as compared to the 41.7 million recognized in 2022. And we now project total company non-GAAP gross margin to be between 63% and 63.8% as compared to the previously issued guidance of 63% and 64.8%. In addition, we currently anticipate between $19.2 million and $19.3 million shares outstanding for purpose of calculating ETF and a U.S. GAAP effective tax rate of between 9% and 13%. The company will continue to tax effect adjustments for computation of adjusted non-GAAP-regulated earnings per share at a tax rate of 24%. We will now open up the call to questions. Operator, please announce the instructions.
spk01: Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press the star key followed by the digit 1 on your telephone keypad. Again, if you find that your question has been answered, you may remove yourself by pressing star 2. Once again, that's star one to ask a question and star two to remove yourself. We'll pause for just a moment to assemble our question queue. We'll take our first question from Les Luski with Truth Securities.
spk03: Les Luski Good morning. Thank you for taking my questions. First, I want to start off on the generics front. It seems to be that there's a shift in tone in gravitation towards a little bit of a weakness that you're seeing. Can you just talk a little bit about that? Which categories, essentially? And the follow-up to that is, what is the reasoning behind the expansion and the manufacturing footprint, given the softness in the market? Or maybe it's a little bit exaggerated. Just give you a little more color, if you can.
spk04: Sure. Good morning, Les, and thank you for your question. I think first on the softness, look, the softness is that we've spoken to is with regards to the very specifically to opportunities that arose from specific product level opportunities that arose from supply chain disruptions, right? We remember we had spoken about several structural factors such as product specific issues, manufacturing site related issues arising from FDA audit outcomes. and company specific financial issues. All of these for our competitors that resulted in, you know, opportunities for us. So when we're talking about softening, we're specifically speaking to specific, you know, across multiple products across generic and established brands, shopping of these product level opportunities. The mix of current opportunities you know, new opportunities and return of opportunities that have gone away is very dynamic and evolving. Therefore, you know, we focus our guidance on sort of overall company numbers, right? And going to your second question, which is, so, so the softening again is related to specific supply chain disruption related opportunities that came up. As Steve mentioned in his remarks and so did I, that we continue to believe in the growth of the generic business. And the expansion at the New Jersey site is to support that growth, that multi-year growth, right? So this is, you know, the addition of additional capacity in the New Jersey site to support, you know, the next two, three years' worth of growth based on products that we have in our portfolio, opportunities, so that's new, you know, existing products, opportunities in our pipeline that are new products that we're going to bring to the market. So it's supporting that growth.
spk03: Michael, that's helpful. Perhaps I'll reframe the question in another way. Are you seeing market weakness or are you seeing more of just the supply chain essentially kind of resolving and stabilizing?
spk04: Yeah, so you're seeing specific resolution of certain supply chain related disruptions. We still think that the macro trends that give rise to the supply chain disruptions, which is the product specific issues, the manufacturing site related issues, the company specific financial issues. All of these are persisting. So the market macro trend is persisting. We're saying that specific opportunities that we had related to these trends are softening. Some of those are softening is what we're speaking towards. Yeah. So we're not talking about overall market weakness at all. Of course, you've heard from many of our competitors in the generic space, and I think you've seen the strength in what they're reporting.
spk03: I have, yeah, and that is helpful. Thank you. Okay, just moving on. On the contraband side, so the one milliliter dosage, is there a difference in shelf life, and would you see a prescribing that's off-label, and what essentially is the appeal to prescribers, and what's the kind of potential opportunity for this dosage?
spk04: Yeah, look, the launch of the 1-ml vial size, and the commercial availability of that is for the adjunctive treatment of certain patients with acute Gaudi arthritis flares. And recently, the company received a specific J-code for cortofen to support physician administration of the 1-mL vial. So the 1-mL vial is for acute Gaudi arthritis flares and certain patients or adjunctive treatment of certain patients with the acute Gaudi arthritis flares. You know, while we've received positive initial physician response. We're very early into this launch. We would love to share more at the next earnings or as the launch evolves.
spk03: Got it. Okay. And just to go back to generics briefly, on the 3Q results, was the impact driven primarily by seasonality, you'd say, the strength, some sort of perhaps inventory stocking, or a just product channel mix? And then how do you envision essentially, given what we discussed earlier, the 24 to kind of shape out? Thank you.
spk04: Yeah. I think the generics, the generics 2-3 performance is driven by
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