ANI Pharmaceuticals, Inc.

Good day, everyone, and welcome to today's A&I Pharmaceuticals, Inc., fourth quarter 2023 earnings results call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Judy DiClemente, Investor Relations for A&I Pharmaceuticals.

Thank you, Angela. Welcome to A&I Pharmaceuticals Q4 2023 earnings 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. You can also access the webcast of this call to the investor 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 SEC. But 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 on our website, www.anifarmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on February 29, 2024. 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?

Nikhil Lalwani Thank you, Judy. Good morning, everyone. Thank you for your interest in ANI Pharmaceuticals and for joining our fourth quarter earnings call. First, I want to thank our customers, suppliers, partners, investors, and the entire ANI team for their collaboration and significant contributions in delivering on our company's purpose of serving patients, improving lives. A strong fourth quarter capped off a record year, and we finished 2023 with $486.8 million in total revenue, an increase of 54% over 2022. Adjusted non-GAAP EBITDA was a record $133.8 million, up 140% year over year. And adjusted non-GAAP earnings per share was $4.71, an increase of 246% from 2022. Total revenues for the fourth quarter were $131.7 million, an increase of 40% over the fourth quarter of 2022. Our lead rare disease asset, purified cortofan gel, generated 41.7 million in the quarter, a year-over-year increase of 137%, and a sequential increase of 40% from Q3. For the full year, cortofan generated sales of 112.1 million, representing year-over-year growth of 169%. I continue to be tremendously pleased by the effort and output of our rare disease team in building our cortofan gel franchise. New patient starts accelerated during Q4 with the strongest sequential quarter over quarter growth in revenue to date. In addition to record new cases initiated and new patient starts, we saw a significant number of first time ACTH users, as well as the return of ACPs who had not prescribed ACTH for several years. Our world-class rare disease sales and marketing team continues to grow the overall ACTH market and overall awareness of ACTH treatment in the US for appropriate patients. total ACTH unit volume was up 15% in 2023 compared to 2022, according to IQVIA. While the number of patients being treated with ACTH therapy in the U.S. is significantly lower today than it was several years ago, since the launch of corticofan gel in the first quarter of 2022, the overall category, ACTH category, has experienced seven consecutive quarters of year-over-year growth and the outlook for the category remains robust. Next, let me share commentary on performance across specialties. Portrophin demand growth continued across our specialties, targeted at launch, which were rheumatology, neurology, and nephrology. In the second quarter of 2023, we expanded into pulmonology, and we quickly gained momentum in this therapeutic area during the fourth quarter, with positive physician responses and growth in new cases initiated and new patient starts. Let's start next to gout. Portrophan gel is the only ACTH product indicated for the treatment of acute gouty arthritis flares. During the quarter, we launched a new 1 ml vial size of cortofan gel for the treatment of acute gouty arthritis flares. Physicians can now administer cortofan gel in their office when a patient presents with an acute need. While it is still early in the launch, we are optimistic about the potential of cortofan gel for this indication, which represents a unique opportunity to introduce cortofan to new prescribers. As we look ahead to 2024, we expect Cortrofen revenues to grow 52% to 61%, to $170 million to $180 million. We believe we are early in the trajectory of Cortrofen gel and will continue to invest behind the franchise to drive greater adoption across current and new specialty areas. We are taking several steps in 2024 to further support this important product. We are adding a second geographical region to our pulmonology sales force, given the strong traction we have seen so far in this therapeutic area. We continue to expand our disease state coverage by adding a small targeted sales force in ophthalmology. This is a specialty where ACTH prescribing has gained traction over the past few years. We believe ophthalmology could be a meaningful growth contributor for portrophin. We are collaborating with top physicians and scientists to better delineate portrophin gel's activity and mechanism of action and help guide treatment decisions. We are also continuing our efforts to better support the patient journey and are investing in enhancing the convenience and removing pain points for patients starting on ACTH and the healthcare providers who treat them. Expanding the scope and scale of our rare disease business through M&A and in licensing remains a high priority. We are currently evaluating opportunities with a focus on assets that are on or close to market and that overlap with our current priority therapeutic areas of nephrology, neurology, rheumatology, pulmonology, and ophthalmology. We are also considering assets outside of our priority therapeutic areas that would leverage our rare disease platform. Starting now to our genetics business, which delivered another strong quarter. We generated 71.8 million in revenue during Q4, an increase of 24% over the last year, and 2% over the strong revenue we reported in Q3. As with the prior three quarters, we were able to leverage ANI's exceptional new product launch execution, operational excellence, and U.S.-based manufacturing footprint to achieve this growth. For the full year, our genetics business generated sales of $269.4 million, representing year-over-year growth of 28%. Three key factors will enable our genetics business to continue delivering robust growth. First, our high-performance R&D team. In 2023, we delivered 11 new product launches and 20 new product filings. In addition, we retained the number two ranking for competitive generic therapy approvals. Second, our strong operational backbone and US-based manufacturing footprint. During 2023, we supplied over 1.5 billion doses of therapeutics to patients in need. In addition, our efforts to expand the manufacturing footprint at our New Jersey site are on track to get the site operational by this quarter. The company continues to maintain a strong compliance track record with successful FDA audits across sites. Most recently, our New Jersey site successfully concluded both a pre-approval and a pharmacovigilance inspection with the FDA with zero observations. Third, our systematic and relentless approach to reducing costs, whether it be for raw materials, finished goods, or corporate spend. Overall, our genetics business remains an established and reliable partner of choice for our customers. Our established brands business continues to address patient needs. with reliability of supply, a unique set of commercial capabilities, and our opportunistic business development to expand the portfolio. Our overall portfolio is strengthened by this high gross margin, low working capital, and strong cash flow generation business. 2023 was a record year for ANI, and we're already off to a strong start in 2024. We look forward to continuing the momentum as we remain focused on serving patients, improving lives. I'll now turn the call over to Steve, who will walk through our fourth quarter financial results in more detail and discuss our guidance for 2024. Steve?

Thank you, Nikhil, and good morning to everyone on the call. We posted another strong quarter to close out 2023 with fourth quarter revenues of $131.7 million, up 40% over the prior year period. Revenues from cortofan gel reported in our rare disease segment were $41.7 million, up 137% from the prior year, and 40% from the third quarter, driven by increased volume. Fourth quarter revenues in our generic established brands and other segments were $89.9 million, an increase of 17% over the prior year period. Within this segment, generic revenues for the quarter were $71.8 million, an increase of 24% over the prior year period and 2% over the third quarter, driven by increased volumes in the base business and contributions from new products launched in both 2022 and 2023. To continue with this segment, net revenues for established brands and other revenues were $18.1 million in the quarter, a decrease of 3% from the prior year period driven by lower volume. The performance was in line with our expectations as described on the third quarter earnings call when we noted that the market conditions for specific molecules had recently changed. Cost of sales, excluding depreciation and amortization, increased 47% to 53.4 million in the fourth quarter of 2023, compared to the prior year period, primarily due to significant growth in sales volumes of both generic and rare disease pharmaceutical products. Non-GAAP gross margin was 59.6%, a decrease of approximately 200 basis points versus the prior year, primarily due to unfavorable product mix. Research and development expenses increased 89% to $9.9 million in the fourth quarter of 2023, primarily due to a higher level of activity associated with ongoing and new products. Selling, general, and administrative expenses increased by 34% to $44.5 million in the fourth quarter of 2023, primarily due to increased employment-related costs, rare disease sales and marketing costs, legal expenses, and patient assistance program costs, as well as an overall increase in activities to support growth. Net income available to common shareholders for the fourth quarter of 2023 was 0.7 million as compared to net loss of 4.7 million in the prior year period. Fourth quarter diluted GAAP earnings per share was 4 cents as compared to a 28 cent loss in the prior year period. On an adjusted non-GAAP basis, Diluted earnings per share was $1 for the quarter, compared to 76 cents per share in the prior year period. Adjusted non-GAAP EBITDA for the fourth quarter of 2023 was $30.2 million, an increase of 29% over the prior year period. From a balance sheet perspective, we ended the quarter with $221.1 million in cash. This balance is net of $12.5 million of contingent consideration paid to selling shareholders of NVIDIA in the fourth quarter. We generated cash flow from operations of $44.7 million during the fourth quarter and $119 million for the full year. We have $294 million in face value of outstanding debt, which is due in November of 2027. At the end of the fourth quarter, our gross leverage was 2.2 times, and our net leverage was approximately a half a turn of our trailing 12-month adjusted non-GAAP EBITDA of $133.8 million. Turning to 2024 guidance. we expect total revenue of $520 million to $542 million, which represents growth of 7% to 11% over 2023. For Cortrop & Gell, we expect revenue to be in the range of $170 million to $180 million, representing growth of 52% to 61%. As you consider the quarterly progression for quattrofen gel in 2024, please note that general pattern of revenue in 2024 is expected to be similar to that reported in 2023, with a modest quarter-over-quarter decline in the first quarter due to prescription reauthorizations, followed by a strong return to growth in the second quarter. This pattern is generally consistent with other rare disease drugs. For generics, we anticipate high single-digit to low double-digit revenue growth on top of our exceptionally strong performance of 28% year-over-year growth in 2023. We expect pricing dynamics for our base generics business to be similar to that experienced in 2023. Note that our generic guidance does not assume incremental benefit from future competitor supply shortages, which were a tailwind in 2023. For established brands, given our performance in the first two months of the year, we believe that revenue in the first quarter of 2024 will be higher than that achieved in the fourth quarter of 2023. Despite that, We expect that the significant tailwind driven by competitive supply disruptions in 2023 will moderate on a full year basis in 2024. As such, our 2024 guidance does not assume any incremental supply tailwinds we are currently seeing beyond the first quarter of the year. Moving down the P&L, we expect total company non-GAAP gross margin between 62% and 63%, which reflects modest erosion relative to 2023 due in large part to product mix. The key factors impacting our 2024 gross margin outlook include higher contribution from cortofan gel revenues, where the margin is meaningfully accretive to our corporate gross margins, offset by lower contribution from established brands, which is our highest gross margin segment. Given the overall strength in the business, we will continue to invest in key growth initiatives in 2024 and expect total operating expenses to grow essentially in line with revenue growth and below 2023 expense growth. Contemplated in our guidance is increased investment in R&D to fuel generic growth through new product launches, along with further strengthening of the Cortropin gel franchise through the initiatives that Nikhil spoke of moments ago. We are also investing in high ROI initiatives in Cortropin sales and marketing. Taking all of those factors into account, we expect full-year adjusted non-GAAP EBITDA of $135 million to $145 million, and adjusted non-GAAP earnings per share between $4.26 and $4.67 in 2024. We currently anticipate between 19.3 million and 19.7 million shares outstanding for the purpose of calculating diluted EPS, which is reflective of a full year of shares outstanding resulting from our May 2023 equity raise. We currently expect our U.S. GAAP effective tax rate to be between 20% to 22% as compared to 5.5% in 2023. The company will continue to tax effect adjustments utilized in the computation of its adjusted non-GAAP diluted earnings per share using our estimated statutory rate of 26%. We will now open up the call to questions. Operator, please announce the instructions.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll take our first question from Gary Nachman with Raymond James.

Hi, guys. Good morning, and congrats on all the progress. First one, Kartrofen, the 2024 guidance. Just how much market growth are you assuming versus share gains from AXR, and any changes in net price anticipated over the course of the year? And what therapeutic areas do you think should be the biggest contributors, I guess, looking out into this year, since the guidance looked pretty solid? And then just in terms of looking at additional rare disease assets, just talk about the market, Nikhil, and how many different opportunities you're looking at currently. Are they mostly in your current therapeutic areas, and are you willing to consider assets outside those therapeutic areas as well? And then just in terms of size, how big are they, and are you confident you can get a deal done sometime this year? Thanks.

Thank you, Gary. Thank you for your question, and good morning. To your first question on corticofin guidance in 2024, the overall category outlook remains robust. The number of patients being treated with ACTH treatments, of course, for appropriate patients, is significantly lower than where it was a few years ago. So the outlook for the category remains robust. And as you've seen, we have had seven quarters consecutively of quarter-on-quarter year-over-year growth in the number of units. So the growth opportunities in the category as a whole is significant. Second, your question on price, we try to find a balance between sharing information that assists the investment community while not giving away competitively sensitive data, But publicly, you will see that both our competitor and we took a 3% price increase on January 1, 2023. And then third part of your question on corticofin was around the therapeutic areas. And look, we see strength in both the therapeutic areas that we initially launched with, nephrology, neurology, and rheumatology. as well as the newer therapeutic areas that we have begun investing in, which is pulmonology, ophthalmology, and gout. And we see momentum. Ophthalmology is clearly new, but we've seen momentum across these therapeutic areas. We have, as reported, record number of new patient starts and new cases initiated in the fourth quarter of 2023. We see that momentum continuing. in the first quarter and throughout 2024. And we also have seen growth across these therapeutic areas. So no one therapeutic area to point out. The second question was on M&A. We have been looking for assets for some period of time. We are, again, trying to find a balance between sharing information that's helpful to the investment community while not giving away sensitive data, in this case, to the companies that we're engaged with. But there are companies that we're engaged with and multiple ones, and they are both ones that are aligned with our current priority therapeutic areas, as well as ones and therefore leveraging our sales force. and ones that are, you know, outside of our therapeutic areas but leverage the rest of our rare disease platform. Yeah. And, of course, as mentioned earlier, you know, expanding the scope and scale of our rare disease business through BD and M&A remains a high priority for the company. Thank you, Gary.

Great. Thank you so much.

The next question comes from Vamil Devon with Guggenheim Securities.

Hi, this is Daniel for Vamil. Thanks for taking my question. So based on our analysis of script trends for the fourth quarter, yeah, the control team sales are maybe a bit stronger than we originally anticipated. So, like, what do you think is maybe the main driver of this? Other particular channels that aren't really captured in IQ via, or it's more of like a pricing dynamic with improvements seen in that price. And then a second question is more on the expense side. So I appreciate your overall commentary on what do you maybe expect in 2024, but maybe you can get a little more detail on the breakdown machine, like SG and a and R and D going forward. Like how do you expect the growth in these? There's going to be more growth in one versus the other. Anything there would be helpful. Thank you.

Yeah. Thank you, Daniel, and good morning, and thank you for joining the call. Look, in your question on Q4 cortofin performance versus what the IQV data is showing, look, for us, revenues trended ahead and will continue to trend ahead due to increased volumes. Key factors driving these? our further increase in effectiveness of our existing sales force, the record number of new patients starts, and continued growth across specialties we targeted since launch, and the new areas such as pulmonology, gout, and now ophthalmology. And then to your second question regarding expenses, we will continue to invest in key growth initiatives in 2024, And as Steve had mentioned, expect total operating expenses to essentially grow in line with the revenue growth and below the 2023 expense growth. And what's contemplated in our guidance is investment in R&D to fuel the generics growth. Our generics business is larger, so we're investing to continue fueling the generics growth through new product launches, to be able to deliver the high single digits, low double digit growth on the genetics business. We've also talked about increased spending on the cortofan side to expand that franchise, the cortofan gel franchise, where we are adding sales team members and marketing and sales efforts in our newer specialty areas of pulmonology, ophthalmology, and gout. We're further strengthening the patient support and operations to support the future growth, and there's also modest R&D spending for cortofan on collaboration with top physicians and scientists to better delineate cortofan gel's activity and mechanism of action and help guide treatment decisions, as well as to better support the patient journey and enhance the convenience, as well as remove pain points for patients starting on ACTH. You also asked about, you know, what's the specific, you know, is it more in one area versus another? And I think we're investing in both, right, the cortosan-related initiatives as well as the, you know, additional R&D spend to support the generics business. Thank you, Daniel.

Okay, great.

Thank you.

The next question comes from Les Salewski with Truist Securities.

Hi, this is Jeremy on for Les. Thanks for taking our questions. Regarding market normalization, what issues are mostly resolved or likely to be resolved this year versus what might still linger? And then also, just any more color on the progress in pulmonology from the Salesforce expansion and any early launch metrics from the one milliliter dose? Thanks.

Good morning and thank you, Jeremy, and thank you for joining our call. I think you asked three questions. One was on pulmonology. So on pulmonology, as we had mentioned, we have seen traction, increased number of new patient starts, increased number of new cases initiated, and positive physician response. Seeing the momentum that we have from the first region, right? We had added a smaller sales force in the second quarter of 2023. We're adding a, you know, adding a second geographical region in pulmonology. So, you know, we are seeing the traction there and are investing to continue increasing the awareness in the pulmonology specialty. You also asked about the 1mL vial and the gout therapeutic area. We are optimistic about the potential of cortofan gel for this indication. However, it is early in the launch, and we look forward to sharing updates in the future. As far as market resolutions and overall market dynamics, the overall macro trend of supply-related tailwinds continues. Having said that, What is contemplated in our guidance is for generics. We have not contemplated any additional benefits from the supply tailwinds. And for established brands, we have not contemplated additional tailwinds beyond what we're already seeing in the first quarter of 2024. Thank you. Thank you, Jeremy.

It appears we have no further questions at this time. I will now turn the program back over to Nikhil Lalwani for any additional or closing remarks.

Thank you, everybody. Thank you again for spending time with us and for joining our call this morning and supporting the ANI team as we work to fulfill our purpose of serving patients, improving lives. We look forward to keeping you updated during the year ahead. Thank you.

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