ANI Pharmaceuticals Inc (ANIP) 2017 Q1 法說會逐字稿

Good morning, everyone, and welcome to ANI's First Quarter 2017 Earnings Call. (Operator Instructions) Please note this call may be recorded.

It is now my pleasure to turn today's program over to Mr. Arthur Przybyl. Please go ahead.

Good morning, everyone, and welcome to ANI's earnings conference call for the first quarter 2017. My name is Art Przybyl, I'm the CEO, and with me today is Stephen Carey, our Chief Financial Officer.

Before we begin, I want to refer everyone to the forward-looking statements language in this morning's press release and ask each of you to review it carefully as important context for this conference call.

Discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today.

Today, we reported strong first quarter results: net revenues of $36.6 million, adjusted non-GAAP EBITDA of $14.7 million and adjusted non-GAAP net income per diluted share of $0.74, increases of 78%, 29% and 40%, respectively, as compared to the prior year. As a result of these reported financial metrics, we are reaffirming our annual guidance: annual revenues of $181 million to $190 million, adjusted non-GAAP EBITDA of $73.1 million to $77.2 million and adjusted non-GAAP net income per diluted share of $3.58 to $3.94.

Our two significant business platforms, generic pharmaceutical and branded pharmaceutical products, generated $26.6 million and $8 million in first quarter net revenues, increases of 101% and 44%, respectively, as compared to the prior year.

Non-GAAP gross profit was $21.8 million or 59% of net sales as compared to $17.1 million or 83% of net sales in the prior period.

In the first quarter, we generated $6.5 million in positive cash flows from operations.

Looking forward to the remainder of 2017, we continue to broaden our generic and brand product lines and we anticipate positive effects on our revenues and non-GAAP EBITDA from the launch of 3 brand products, InnoPran XL and Inderal XL and Inderal LA in the newly launched ANI label. In addition, we anticipate several new generic product launches. Recently, we announced the launch of Indapamide tablets. And lastly, our partner, IDT Australia, announced it has received FDA clearance for Pindolol tablets, which will allow us to launch the product in the coming weeks.

Finally, our EEMT market share has increased to approximately 65% due to a contract win and the fact that one of our EEMT competitors has dropped out of the market, the full effect of which will begin in the second quarter. In the first quarter, EEMT revenues were $5.1 million.

Corticotropin gel and its recommercialization effort continues to progress. Recently, we successfully manufactured a development line of Corticotropin active pharmaceutical ingredient that replicated the yield in manufacturing process from when the API was last manufactured. Because of this success, we have begun process characterization and scale-up efforts on 3 batches of API, which is the next step prior to commercial API manufacturing. We will soon select the finished dosage for our manufacturer and intend to initiate finished dosage form manufacturing of Corticotropin gel in the second half of this year.

We continue to advance the development of analytical methods in order to modernize the NDA. We made progress in developing analytical methods to analyze the components of the purified Corticotropin API powder. These analytical methods are being used to generate results that are, in turn, compared to results from historical batches of API. In addition to our manufacturing and analytical method work, we have developed a comprehensive regulatory filing plan for Corticotropin gel and intend to meet with the FDA to present the plan in the second half of this year.

I will now turn the conference call over to our Chief Financial Officer, Stephen Carey, who will provide you with more details on our financial results.

Thank you, Art. Good morning to everyone on the line, and thank you for joining the call to discuss ANI's first quarter 2017 financial results.

ANI began 2017 by posting a strong quarter that was in line with our internal expectation and one that sets the tone for achievement of our full year goals and objectives. Net revenues for the quarter ended March 31, 2017, was $36.6 million, representing a 78% increase from prior year as the company continues to execute on key 2016 product launches and integrates InnoPran XL and Inderal XL into our brand portfolio. Sequentially, reported net revenues were down a modest 4% or $1.6 million from fourth quarter 2016, driven by the contraction of the market size of EEMT, which negatively impacted sequential sales comparisons by $1.3 million. This contraction as well as the recent EEMT contract wins cited by Art was fully reflected in our internal quarterly plan and external annual guidance as originally presented. We recognize that the analyst community did not quite reflect the extent of this quarterly phasing in the consensus figures. However, this should not be tracked from our published results today.

First quarter adjusted non-GAAP EBITDA was $14.7 million, representing a $3.3 million or 29% increase from the year ago period. This result was achieved while increasing our investment in R&D by over $600,000 driven by our Corticotropin recommercialization project.

Our adjusted non-GAAP diluted earnings per share metric increased $0.21 or 40% from prior year to $0.74 per diluted share.

As previously reported in our year-end 2016 earnings call, in February, we utilized cash on hand, along with $30 million of borrowings from our credit agreement with Citizens Bank, to fund the purchase of 2 brand products, InnoPran XL and Inderal XL, for total consideration of approximately $51 million. These transactions had been accounted for asset acquisitions under U.S. GAAP purchase accounting rules and have resulted in approximately $34 million of product-level intangible assets and nearly $17 million of purchased finished goods inventories stated at fair value on our balance sheet. The intangible assets will be amortized over a 10-year estimated useful life with the majority of the amortization to be taken during the period of patent protection for the assets. The inventory step-up will be amortized as the inventory is sold through.

From the close of the transaction in February through March 31 of this year, we recognized approximately $1.5 million of incremental cost of goods sold for sales of these products related to the inventory step-up. Further details of the accounting for these transactions can be found in our first quarter 10-Q, which will be filed with the SEC after the bell this afternoon.

Turning to the details of our first quarter sales performance. Net revenues of our generic products doubled from the first quarter of 2016 to $26.6 million, driven by the continued execution of our 2016 product launches. Key contributors included fenofibrate, propranolol ER, E.E.S., Nilutamide and mesalamine.

Net revenues for our branded pharmaceutical products grew 44% year-over-year to reach $8 million in the quarter, driven by the April 2016 launch of Inderal LA and the introduction of InnoPran XL and Inderal XL into our product lineup in the second half of February 2017.

In addition, revenues from contract manufacturing services were up $409,000 or 30%.

Cost of sales as a percentage of net revenues increased from 17% in the prior year to 45% in the current year, partially driven by the aforementioned $1.5 million of cost of goods sold recorded in the current quarter due to the Inderal XL and InnoPran XL inventory step-up. Excluding this amount, cost of goods sold represents 41% of net revenues for the first quarter of 2017, in line with expectations and reflective of the increase in sales of products with profit-sharing arrangements.

Selling, general and administrative expenses were $7.3 million as compared to $5.9 million in the prior year, primarily due to employment-related costs as we have added personnel to support the growth of our business. In addition, during the quarter, we incurred nearly $500,000 of transaction expenditures including legal and due diligence support related to a transaction that we ultimately decided not to pursue. This amount has been added back for the purpose of our non-GAAP measures.

Research and development costs were, as forecasted, higher in the first quarter driven by momentum in our Corticotropin recommercialization program.

Notably, our overall effective tax rate for the quarter was 31% of quarterly pretax income, reflective of the previously discussed fourth quarter dissolution of the foreign subsidiary that was put in place in conjunction with our first quarter 2016 purchase of the Corticotropin assets from Merck.

From a balance sheet perspective, we had unrestricted cash and cash equivalents of $10.8 million as of March 31, 2017. This balance is reflective of first quarter cash flow from operations of $6.5 million and a utilization of approximately $21 million of cash on hand to fund the Inderal XL and InnoPran XL transactions. We also drew down $30 million from our credit agreement with Citizens Bank to fund these purchases. As of the March 31 balance sheet date, we had net debt of approximately $163 million, representing approximately 2.2x net leverage utilizing forward-looking 2017 adjusted EBITDA.

As stated in our press release this morning, we are reaffirming our annual guidance as first published and discussed in detail on our fourth quarter 2016 earnings call and associated press release. In summary, we project full year net revenues to reach between $181 million and $190 million, representing a robust 41% to 48% increase over 2016 and a corresponding 20% to 26% growth in our adjusted non-GAAP EBITDA to be between $73.1 million and $77.2 million.

This guidance continues to include anticipated increase in quarterly revenues from EEMT, driven by recent contract wins; the annualization and continued operational focus on maximizing 2016 launches; expansion of our brand revenues with the addition of Inderal XL and InnoPran XL; and execution of 2017 generic product launches while continuing to increase the investment and momentum behind our Corticotropin recommercialization project, our employee base and our manufacturing and distribution capabilities.

With this, I will turn the call back to our President and CEO, Art Przybyl.

Thank you, Steve. Moderator, we will now open the conference call to any questions.

(Operator Instructions) Your first question comes from the line of Elliot Wilbur of Raymond James.

First question for yourself, Art, regarding your commentary around the EEMT market and trends there. I guess, given your assumption now that with the contract win you moved around 65% of the market, it looks like the beginning of the year -- I mean, that market's been a long -- has been in decline for kind of a long period of time in terms of prescription volume, but it kind of looks like the beginning of the year there was more pronounced sort of step-down in volume trends and I don't know if there's something happening there in terms of product availability or whatever that may have sort of depressed volume levels. But is your thinking at this point that you're going to have 65% share of market that's slightly under 10,000 scripts a week and continues to trickle lower? Or do you think there was something maybe unusual that kind of impacted overall volume trends for that category since the beginning of the year?

So hi, Elliot. Thanks for the question. So we experience in EEMT market every year script declines of -- in the neighborhood of 15% to 20% and that expectation is always built into our forward-looking sales estimates for the products. So to give you an example, year-over-year, first quarter of '16 versus first quarter of this year, our unit sales were down by approximately 15,000 units or a total of 2.75 in net sales. Now that was driven by, certainly, script declines year-over-year, but also by the fact that our market share was in that 45% to 50% range as compared to where it was in the first quarter of 2016. So we see -- we're always going to experience script declines in that product. It's just a function of a generic product that's not being -- obviously not -- has no detail left behind it. But at the same time, we now have 3 of the 4 large script groups, buying group consortiums, under contract and so that allows us to -- you'll see an increase in our overall unit sales from our representative market share today to climb to what's representative of 65% of the existing market as it stands today. So we expect to see revenue increases over the course of the rest of the year on EEMT.

Okay. And then, I guess, with respect to the performance of the generic base over the last couple of quarters, obviously, sequentially, it's been down 2 straight quarters and EEMT, of course, accounted for some of that in the first quarter. But it looks like all the key base products have actually performed pretty well. So I guess, some of the questions or queries we had this morning are just some investor questions about sort of some of the smaller products in the generic base and ultimately whether you're seeing maybe stepped-up price erosion on some of your smaller assets similar to what some other companies in the space have commented on the last couple of days and weeks.

Well, we have approximately 20 generic products, 21 if you include Indapamide. And we're fortunate that we have about 7 of those products that have essentially 1 or 2 competitors or no competitors and so -- in the generics space. And so that, to some respect, insulates us from some price erosion that's certainly occurring in the marketplace today. And many of those products that I mentioned also have exclusive raw material relationships associated with them. So that's helpful to us. That sort of puts us in a bit of a unique position now. That's tempered by the fact that, clearly, there's a new buying consortium, and I think we all know that Claris One has sent out request for proposals and eventually will make awards. So that provides certainly for more competitive platform across-the-board for generic products. But our business continues to grow in the generics space even with the headwind that we have experienced, Elliot, year-over-year in regards to EEMT. Our business in generic products is up 100%. And so we see our business as continuing to be a growth engine with products that we're going to launch in our generic platform. And so that's helpful. I mean, we are not a company yet that has, what I would call, scale. 20 products in the generic marketplace does not represent scale. We've just been fortunate to choose ones that have lesser competitive environment, a lot of companies seek those out. But our objective is continue to launch products, grow revenues in the generic space and continue to advance our -- broaden our product line offerings.

Okay. And then just one last question around some of the additional Corticotropin disclosures in the press release today. You indicate that you intend to meet and present the plan to the FDA in the second half. Have you already requested that meeting at this point?

We have not. We'll request a Type C meeting at the appropriate time to obviously adapt to the timeframe that I mentioned, the second half of the year. We have a strategic planning session scheduled later on this month with our Corticotropin development team. We'll kind of be putting a stake in the ground as we advance towards an sNDA filing and part of that will be when we request a meeting, the Type C meeting, with FDA. Typically, FDA will grant those meetings with a 60-day lead time, sake of argument. So we have not yet approached FDA and asked for a meeting, but it's our plan to do so and obviously meet with them in the second half of '17.

Okay, understood. And I guess, the last question then would be what would be the sort of the next key disclosure that we might get with respect to that program? And are you going to tell us when you have the meeting scheduled or update us after the meeting or...

I think, certainly, what's very important -- no, what's very important Elliot, we're trying to take a step approach in terms of disclosure and not get ahead of ourselves. The disclosure that we've advanced ourselves now to initiate process characterization on the manufacturing of 3 lots of purified Corticotropin powder, that's important because that represents lock-to-lock consistency in terms of yield, potency, et cetera, and I think that, that is a key milestone. From our perspective, if we can accomplish that, successfully accomplish that, we've got runway to an sNDA filing. And so that is something that I would think would be, from my perspective, is the next significant milestone associated with the project.

Your next question comes from Scott Henry of Roth Capital.

Just a couple of questions. On EEMT, we're already starting to see the market share gains in the scripts. Question is how is the pricing environment? It sounds like it could be stable given that a competitor has left the field. But just trying to get a sense of did you have to trade price for volume? Or was there simply not enough supply out there?

So it's relatively stable, the pricing environment. Again, there's only one other competitor today, Scott, that's Creekwood. And as I mentioned, they have 1 of the 4 big buying consortium awards, primary awards. So for right now, it's relatively stable pricing. Remember that our product has always been priced higher than Creekwood's price.

Okay, great. And then when I look at the product mix, I'm just wondering if there's a couple kind of a bigger or anchor products and I'm wondering if you could give me a sense of how revenues were for those because they're kind of significant drivers, I guess, I think fenofibrate and propranolol ER and then maybe the Inderal line. Any sense of how those 3 -- I mean, those look like to be 3 of the bigger ones. You gave us the EEMT, any sense of how their...

So we typically -- outside of EEMT because we had, early on as a public company, such a large concentration in revenues and obviously, gross profit associated with that product, we've always talked about the revenue base for that product. We don't disclose our revenues for other individual products. I can tell you, though, that since we acquired propranolol ER last year where the generic revenues for the product are certainly up over that period of time. I think we acquired a product that had an 8% market share level and our market share has certainly increased from that point. In regards to fenofibrate, fenofibrate, I'll remind you is a product that we receive a small amount of the sales revenues because we are marketing this product under our license as an authorized generic. And the revenues there have been fairly stable since we acquired the license to market this product. But we've seen our market shares on our key products, majority of them, increase over time. And that's obviously contributed to the doubling of our generic revenues from the prior year period.

Okay, great. And then on the Corticotropin program, I mean, it wasn't that long ago that you reported full year '16 results. But certainly, to me it looks like there's a lot more granularity, a lot more disclosure and it appears like you had some progress there. Was there anything specific that happened between the last reporting and this one? Or are you just giving us greater color because it does look like...

I think we're -- we've always been careful not to get ahead of ourselves on the project. I think we're just providing more color on milestones that have been achieved, us developing, successfully manufacturing the first development lot of purified Corticotropin powder is an important milestone because being able to replicate the yield that we anticipated from, let's say, historical manufacturing was very important in the project. And if you think about where we've come -- where we started in, let's say, January of last year when we acquired the asset, we've assembled a team, we have put together what we feel are the necessary analytical methods to modernize the NDA. We've started contract manufacturing or manufacturing of purified Corticotropin raw material. We've sourced, obviously, the natural substance, porcine pituitaries, and now we have what we feel is a fairly comprehensive regulatory filing strategy. And so we're getting to the point now where, as I always say, there's going to be enough meat on the bone, data points, to allow us to sit down with the FDA and discuss our intent to submit a supplemental NDA filing in the not-too-distant future. So this is just a natural course of events from my perspective, Scott, as to how we've rolled out this recommercialization program. And I think you should expect these updates to be -- well to articulate where we're at in the project and if that means that it provides more color to the project, then so be it. But I think it's just important that we report on what we consider to be significant milestones for the project as we move forward.

Okay, great. Final question, just regarding the expenses related to a transaction not consummated, that $477,000, can you give any -- is that a situation where the cost was higher than typical and that's why you called it out? Or you were very close to doing it and then pulled back? Just since you have pulled it out, I just thought I'd ask you about it.

Let me give you some color on the transaction. As you know, we continually look to advance to maturation of our business model. We were looking at, quite frankly, and it's without obviously naming any names, we were looking at vertically integrating into raw material manufacturing. We were looking at potential additional formulation capabilities, and at the same time, we were looking at acquiring a pipeline of filed ANDAs and ANDAs about to be filed. And so we always have viewed that step as important progress for the company, and it was unfortunate that we were not able to consummate the transaction. We just felt that in the due diligence process that the value was not something that we were -- or the price was not something that we were willing to pay. And so we've decided to cease exploring the opportunity and obviously walk away. And so -- but at least that gives you a feel for part of the company's internal strategic thinking as how we'd like to advance the company on a go-forward basis.

Thank you. I'll now return the call to Arthur Przybyl for any additional or closing remarks.

I would just like to thank everybody for attending our earnings conference call today, and look forward to our next quarter and getting together once again. Thank you very much. Bye-bye.

Thank you. This concludes ANI's First Quarter 2017 Earnings Call. You may now disconnect your lines at this time, and have a wonderful day.