ANIP - NASDAQ

Good morning, everyone. My name is Chelsea and I will be your conference operator. At this time, I would like to welcome everyone to ANI Pharmaceuticals Second Quarter 2023 Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded today, August 9, 2023. It is now my pleasure to turn the floor over to Ms. Judy DiClemente, Investor Relations for ANI Pharmaceuticals. Ma'am, please go ahead.

Thank you, Chelsea. Welcome to ANI Pharmaceuticals Q2 2023 earnings results call. This is Judy DiClemente of Insight Communications Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; and Stephen Carey, Chief Financial Officer. You can also access the webcast of this call through the Investors section of the ANI website at www.anipharmaceuticals.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 ANI Pharmaceuticals' management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. The archived webcast will be available for 30 days on our website anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 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 will turn the call over to Nikhil Lalwani. Nikhil?

Thank you, Judy. Good morning, everyone, and thank you for joining our call and for your interest in ANI Pharmaceuticals. I would like to start this morning's call by thanking the ANI family and our suppliers, customers, partners, and shareholders for all their efforts in enabling us to serve patients in need. I am very pleased to share with strong momentum seeing over the past several quarters has continued into the second quarter of 2023 and across all business segments. This morning, we reported net quarterly revenues of $116.5 million, an increase of nearly 58% over last year and approximately 9% growth over the first quarter of 2023, this was also a record quarter. Our adjusted non-GAAP EBITDA of $34.1 million also represents a company record and a nearly 246% year-over-year increase. Our adjusted non-GAAP diluted EPS of $1.28 represents almost a tenfold growth over the second quarter of 2022 and the company generated cash of $42 million from operations during the second -- during the first half of the year. These results and the outlook for all segments of our business have allowed us to once again raise our full-year 2023 guidance. We now expect net revenues to be in the range of $425 million to $445 million, adjusted non-GAAP EBITDA to be between $115 million and $125 million, and adjusted non-GAAP earnings per share to be between $3.62 to $4.11. Let's now take a closer look at the performance and progress made on our strategic imperatives in each segment. Starting with our Rare Disease business. Our goal is to scale up our Rare Disease business with the successful launch of our lead asset, Purified Cortrophin Gel, and to add assets that leverage the Rare Disease infrastructure we have built. Revenues for Cortrophin Gel totaled $24.3 million in the first quarter, an increase -- an increase of 138% over the prior year and up 49% compared to the first quarter. During the quarter, we saw record numbers across several areas including new patient starts, new cases initiated, and new unique prescribers. We also have continued growth in repeat prescribers. Growth was achieved across all targeted specialties including neurology, nephrology, and rheumatology. Also during the second quarter, our modest sales team expansion into pulmonology already began gaining momentum. The outlook for the overall ACTH category is also robust with 12 consecutive months of year-over-year growth from June 2022 to May 2023 and double-digit growth to all of 2023. We remain focused on continuing to improve how we service patients, physicians, and payers to increase access to ACTH therapy for patients in need. We are raising our full-year revenue guidance for Cortrophin Gel to $90 million to $100 million, up from $80 million to $90 million. The new range represents year-over-year revenue growth of between 116% and 140%. Rare Disease remains a critical focus area for ANI and we expect it will be the largest driver of the ANI's growth. Increasing the scope and scale of our Rare Disease portfolio is a key priority. Following our recent successful equity raise resulting in $80.6 million of net proceeds and our strong cash flow generation, we believe we are well positioned to build upon the strength of our Rare Disease platform and we are actively pursuing M&A and in licensing opportunities. Turning now to our Generics, Established Brands and Others segments, which also delivered strong results during the quarter growing by 45% year-over-year to $92.2 million in the second quarter. We have continued to build our reputation as a very reliable supplier by leveraging our U.S. manufacturing footprint maintaining a strong GMP track record across sites and maintaining healthy inventory levels for finished goods and raw materials. This enables us to capture opportunities arising from numerous supply disruptions that continue to impact patient access to much-needed medicines across both Generics and established brands. For our Generics business, we remain focused on driving growth through superior new product launch execution, operational excellence, cost competitiveness, and supply reliability with a patient-first orientation always. During the quarter, our strong R&D organization received four abbreviated new drug application or ANDA approvals including Colestipol Hydrochloride and Nitrofurantoin Oral Suspension. In addition, we found multiple new ANDAs and we'll continue investing in R&D with a focus on niche opportunities to fuel the growth of our generics business. The company also continued to be active on the business development front acquiring three products from the Akorn Pharma auction. During the quarter, we also expanded commercialization efforts into new sales channels and we will continue striving to take our more than 100 product families to patients in need. As previously announced, manufacturing operations ceased at the Oakville, Ontario, site in January 2023, with the successful relocation of the Oakville products to our U.S. facilities and discussions with potential buyers for the -- for the Oakville site remain ongoing. For our established brands business, we continue to innovate our commercialization efforts across products. These efforts coupled with the supply reliability that we have spoken about earlier have driven our success. As you've heard today, it was an impressive second quarter across multiple fronts and we're excited to continue the momentum into the second half of the year. I will now turn the call over to Steve, who will walk through our second quarter financial results and revised guidance in more detail. Steve?

Thank you, Nikhil, and good morning to everyone on the call. As Nikhil indicated, we posted very strong results in the second quarter of 2023, capitalizing on the groundwork we have laid over the past three years to build sustainable growth platforms and strengthen the capabilities of ANI. We saw growth across our core businesses, generating record second-quarter revenues of $116.5 million. This represents $42.7 million or 58% growth over the $73.9 million reported in the second quarter of 2022 and is up 9% sequentially from the $106.8 million of revenues reported in our previous record first quarter of 2023. Revenues from Cortrophin reported in our Rare Disease segment were $24.3 million in the quarter, up $14.1 million from the prior year. We believe our first half of 2023 performance creates a strong foundation for achieving our full-year Cortrophin revenue goals which we revised upwards this morning. Revenues of our Generics Business, Established Brands and Other segment rose $28.6 million to $92.2 million, an increase of 45% over the prior year. Net revenue gains across this segment reflect increased volumes driven by annualization of 2022 launches, current year launches, and our ability to quickly and effectively respond to evolving market needs. Our strong commitment to U.S.-based manufacturing, excellence in generic R&D, and an informed and nimble procurement and sales marketing teams have enabled ANI to meet market demand for key products in the face of competitive supply chain issues. Operating expenses increased by 20% to $104.1 million for the three months ended June 30th, 2023, compared to $86.8 million in the prior year period. Cost of sales excluding depreciation and amortization increased by $7 million to $42.3 million in the second quarter of 2023 compared to $35.3 million in the prior-year period, primarily due to a significant increase in sales volumes of Generic and Rare Disease pharmaceutical products. Research and development expenses were $7.4 million in the second quarter of 2023, an increase of $3.2 million from the prior-year period, primarily due to a higher level of activity associated with generic projects coupled with an increase associated with projects related to Cortrophin Gel in the current year period. Selling, general and administrative expenses increased by 21% to $38.8 million in the second quarter of 2023 compared to $32 million in the prior year period, primarily due to increased employment-related costs and increased legal expenditures during the quarter. Depreciation and amortization expense was $14.7 million for the three months ended June 30th, 2023, an increase of approximately $900,000 from the prior year period. We recognized contingent consideration fair value adjustment related to our 2021 acquisition of Novitium of $1 million of expense in the current year period as compared to $1.1 million of income in the prior year period. Regarding the closure of our Oakville, Ontario, Canada manufacturing plant, there was a de minimis P&L impact in the current year period as our restructuring activities are essentially wound down. This is compared to $2.6 million of restructuring expense recorded in the prior year period. The land and building remain for sale at this time. Net income available to common shareholders for the second quarter of 2023 was $5.8 million as compared to a net loss of $15.3 million in the prior year period. Diluted GAAP earnings per share was $0.29 as compared to a $0.94 loss in the prior year period. On an adjusted non-GAAP basis, we had diluted earnings per share of $1.28 for the quarter compared to $0.13 per share for the prior year period. Adjusted non-GAAP EBITDA for the second quarter of 2023 reached a new company record of $34.1 million and reflects gross profit pull-through from the strong revenue performance. This is an increase of $24.2 million compared to the $9.9 million posted in the prior year period. Adjusted non-GAAP EBITDA also rose $1.1 million on a sequential basis, up from our previous record $33 million recognized in the first quarter of 2023. From a balance sheet perspective, we ended the quarter with $161.7 million in unrestricted cash, driven in part by cash flow from operations of $20.6 million during the quarter ended June 30th, 2023. On a six-month year-to-date basis, we have generated $42 million of cash flow from operations. The ending cash balance also reflects net proceeds of $80.6 million raised in our secondary equity offering completed in May. This balance along with expected second-half cash flows and $40 million of untapped capacity in our revolving credit facility place us in healthy position to pursue our strategic business development initiatives. We have $295.5 million in face value of outstanding debt, which is due in November of 2027. As of the balance sheet today, our gross leverage is 2.7 times and our net leverage is 1.2 times trailing 12-month adjusted non-GAAP EBITDA of $108.9 million. Finally, 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 $425 million and $445 million, up from previously issued guidance of $385 million to $410 million representing approximately 34% to 41% growth as compared to the $316.4 million recognized in 2022. We are raising total company adjusted non-GAAP EBITDA to be between $115 million and $125 million, up from previously issued guidance of $97 million to $107 million, representing approximately a 106% to 124% growth as compared to the $55.9 million recognized in 2022. We are raising total company-adjusted non-GAAP earnings per share to $3.62 to $4.11, up from previously issued guidance of $2.99 to $3.45, representing approximately a 166% to 202% growth as compared to the $1.36 reported in 2022. We are raising Cortrophin-specific revenue guidance in the range of $90 million to $100 million, up from previously issued guidance of $80 million to $90 million representing a 116% to 140% growth as compared to the $41.7 million recognized in 2022. And we now project total company non-GAAP gross margin of between 63% and 64.8% as compared to previously issued guidance of 60% and 62.5%. In addition, we currently anticipate between 19.1 million and 19.3 million of shares outstanding for second half EPS and U.S. GAAP effective tax rate of between 6% and 10%. The company will continue to tax effect adjustments for computation of adjusted non-GAAP diluted earnings per share at our blended statutory rate of 24%. With that, we will now open the call to questions. Operator, please announce the instructions.

[Operator Instructions] And our first question will come from Vamil Divan with Guggenheim Securities.

Great, thanks for taking my questions. So a couple if I could. One just on the Established brand segment, obviously very strong results again there. I'm just trying to get a better sense of what you see as the sustainability of this level of performance in the next couple of quarters even into next year as if you have to model that would be very helpful. Obviously, a little bit tougher for us to see that externally how that's performing the details? And then the second one just around your comments around Rare Diseases and picking up additional Rare Disease assets to build on your -- what you built with Cortrophin. I'm wondering if you just give a little bit more detail there in terms of -- and what should we expect in terms of the pace of doing deals or what kind of assets you're looking for and also your willingness to introduce equity during an acquisition as opposed to something more cash based? Thank you.

So, good morning, Vamil, and thank you for your question. I'll take the Rare Disease question first. Look our corporate development team led by Chad Gassert and the executive team has been very active in evaluating the range of opportunities available to us. We remain focused on finding assets or companies that could provide significant synergy in terms of leveraging the infrastructure that we have built around Purified Cortrophin Gel. And that's both around the target specialties that we currently call on as well as the infrastructure -- the Rare Disease infrastructure around specialty pharmacy distribution market access and the patient support hub, all of it, right. So basically assets that can leverage the sales force and the remaining Rare Disease infrastructure that we have in place. We are encouraged by the potential path forward. However, we remain steadfast in ensuring that we are diligent and highly selective as we seek to deploy the capital towards this strategic imperative and that also drives our sort of choice in - of how to fund it, right. Obviously, we did the equity raise earlier this year with the intent of fueling this with expansion and expanding the scale and scope of our Rare Disease business. And that's what that was about, right, so that's the answer. The second is, look, your first question on established brands, ANI's robust results in Generics established brands and other segments just showcases our ability to leverage our U.S. manufacturing footprint and our agility in operations to deliver timely solutions to our customers. It enabled us to capture market demand arising from supply disruptions impacting patient access to much-needed medicines. We see this as a positive trend impacting our business. And we expect this trend to continue. The degree is what we've factored into the guidance, what we've given. And then as I said earlier on the established brands in addition to the what's driving the success is we continue to innovate our commercialization efforts across products and couple that with supply reliability, that's what's driven our success. Thank you, Vamil.

Okay, thank you.

Thank you. Our next question will come from Les Sulewski with Truist Securities.

Good morning. Thank you for taking my questions and congrats on the progress. Which particular areas of the market are driving the ACTH growth and how's the early uptake Cortrophin been on pulmonology? If any comments you can give around new patients starts, repeats or dosing averages? And I guess what have been some of the internal levers that you've been able to pull to drive the growth? And I have a follow-up. Thank you.

Yes, good morning, and thank you, Les. Welcome to the ANI call. I believe this is your first time here, so welcome. In terms of what drove the PCG growth, Purified Cortrophin Gel growth, it was driven by a record number of new cases initiated. This growth came from a record number of new unique prescribers and continued growth in repeat prescribers. And to your question regarding which specialty, look we'd highlight that the growth was across all targeted specialties of rheumatology, nephrology, and neurology and also early traction seen by our pulmonology sales team, right. So we've done a modest expansion of our pulmonology sales team and we've seen early but a strong traction for that team with -- in that indication. And then in addition, we had spoken last quarter about the increased investment in patient support and our hub infrastructure and we're able to translate the new case momentum to a record number of new patient starts. So that's what's driven the growth in Cortrophin Gel. I believe you had a follow-up, right.

Yes. Very helpful, thank you for that, Nikhil. And then in regards to some of the R&D pipeline, I mean, what is -- within Generics, which therapeutic areas or product tied specifically are of interest to you at this stage? Thank you.

Yes. Look, in Generics, we are continuing to invest in R&D with a focus on niche opportunities, so rational competition areas. We haven't defined dosage forms, but we keep looking for niche opportunities and we know we have a successful track record and it's really the track record of the company. We acquired Novitium two years ago to fuel the growth of our Generics business and you've seen that in the launches that we bring to the -- we brought to the market and the continued growth that we've had in our Generics business. We also continue to be active on the business development front opportunistically for smaller asset level yields and that's what the combination of the strong R&D organization with an established track record along with the smaller business development asset type deals will drive the pipeline of the Generics business and fuel the growth of our Generics business.

All right. Thank you. There are no further questions in the queue at this time. So, I would like to turn the call back over to Nikhil Lalwani for any additional or closing remarks.

Thank you, Chelsea. And thank you everyone for joining our call this morning. ANI is well-positioned to continue delivering sustainable growth and serving patients in need. We look forward to updating you on our progress and we appreciate your time and interest in ANI. Thank you.