ANI Pharmaceuticals Inc (ANIP) 2021 Q3 法說會逐字稿

Good day, everyone, and welcome to ANI Pharmaceuticals' Third Quarter 2021 Earnings Results Call. (Operator Instructions) Please note, this call is being recorded. It is now my pleasure to turn the program over to Lisa Wilson.

Thank you, Emma. Welcome to ANI Pharmaceuticals' Q3 2021 Earnings Results Call. This is Lisa Wilson, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; and Stephen Carey, Chief Financial Officer of ANI. You can also access the webcast of this call through the Investors section of the ANI website at anipharmaceuticals.com.

Before we get started, I would like to remind everyone that any statement made on today's conference call that expresses 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 is held or recorded on November 1, 2021. 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.

Thank you, Lisa. Good morning, everyone, and thank you for joining our call. I am thrilled to share with you that the significant progress ANI has made on our key strategic pillars puts us truly at an inflection point, transforming ANI into a leading biopharmaceutical company serving patients in need and poised for the next period of significant growth.

First, as we mentioned this morning, we are delighted that the FDA has approved our supplemental new drug application for our Purified Cortrophin Gel This is a very important milestone for ANI and a testament to the hard work and dedication over 5-plus years of our internal team, along with our suppliers and external consultants, always operating under the guidance of the FDA.

Most importantly, it is a victory for the patients with certain chronic autoimmune disorders, who cope with a devastating disease on a daily basis. This approval introduces a much-needed choice into the U.S. repository corticotropin market, which for the last 30 years has had only one marketed treatment.

Since acquiring the product from Merck back in 2016, we have made significant investments in establishing and updating our manufacturing processes and ensuring a sustainable U.S.-based supply chain, all with the goal of providing access for patients, physicians and the overall health care system. The reason this is so important is that there are patients who are refractory or intolerant to corticosteroids. These patients have an especially urgent need for effective alternatives as they are at risk of ongoing organ damage for long-term disease.

Specifically, the FDA has approved our Cortrophin Gel for the treatment of multiple chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis, in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is approved for all current ACTH indications with the exception of infantile spasms. In addition, our product is the only ACTH-based therapy approved for the treatment of gouty arthritis.

Turning now to our commercialization strategy. The ACTH market in 2020 was approximately $770 million of revenues with only one competitor in the class. We are planning a full-scale market launch by early first quarter of 2022. We have already onboarded an energized and highly experienced rare disease leadership team to drive the successful launch. We have also been building sufficient finished product inventory levels to support a timely launch.

We have significant ongoing investment in people and commercial infrastructure for our launch. Key elements of our plan include a strong sales force, optimal market access and reimbursement, bespoke distribution, salient hub and patient support services, medical affairs, and marketing and advocacy. I look forward to sharing more details of these programs as we get closer.

Moving now to progress on the second key strategic pillar of strengthening our generics business through enhanced R&D capabilities and increased focus on niche opportunities. Our acquisition of Novitium is on track to close in November. We have engaged in extensive discussions with the FTC over the past several months to obtain the necessary approval of the acquisition and are pleased to report that the agreements containing consent orders have been finalized with the FTC staff and are awaiting final approval by the commissioners. We currently expect to close the acquisition later this month.

In parallel, the underlying deal thesis continues to strengthen. In the 8 months since we announced the deal, Novitium has garnered 10 approvals with several limited competition launches, and we currently anticipate new launch momentum to continue post deal closure. With this transaction, ANI is gaining a robust R&D engine built by a highly experienced R&D team that will accelerate new product launches, which is critical in the generics business.

In addition, Novitium brings multiple dosage form capabilities and an efficient process for gaining approvals once filed and launching promptly after approval. As to the fact that Novitium's base business actually has grown from 2020 to 2021, reflecting its reputation as a highly reliable supplier with a strong cost position. All of these factors will complement ANI and help us grow our generics franchise.

The combined company will add great technical capabilities to bring complex, high-value products to market efficiently and cost-effectively. We are very much looking forward to closing the deal and joining forces with the Novitium team to strengthen our position in this segment and bring important therapeutics to the patients who need them.

In parallel to these exciting developments, we have delivered a strong third quarter and have continued to enhance our base business and core capabilities. Third quarter revenues totaled $52.1 million and adjusted non-GAAP EBITDA was $16.6 million.

In September, we launched Nebivolol, our generic version of the reference listed drug Bystolic. This is an important product launch for us as we showcase our ability to secure the supply chain for patients and customers by simultaneously launching across 2 manufacturing sites, our Baudette, Minnesota plant and the one we acquired Nebivolol from.

This resemblance also provides us a unique opportunity to take advantage of parts of the market that are not accessible to others. We look forward to capturing the full value of this important launch and more importantly, continuing to serve the patients in need.

It has been 14 months since I joined ANI, and I'm delighted at the tremendous progress we have made as a team and the momentum that we have built. We have taken stock of our capabilities, understood our gaps and the market opportunities to clearly define 4 strategic pillars.

We have prioritized and worked relentlessly to achieve critical milestones on the key strategic pillars: approval of Cortrophin Gel, preparation for full-scale commercial launch and the acquisition of a best-in-class R&D engine to enhance our generics business. ANI is truly at an inflection point to transforming into a leading biopharmaceutical company serving patients in need and well poised for the next period of significant growth.

With that, I'll turn the call over to Steve to further discuss our Q3 2021 financials.

Thank you, Nikhil, and thank you to everyone on the line that has joined us on this exciting day in ANI's history. Net revenues for the third quarter of 2021 were $52.1 million as compared to $53 million posted in the third quarter of 2020.

Sales of our generic products were $35.1 million during the third quarter of 2021, a decrease of 6.8% compared to the $37.7 million for the same period in 2020. The net decrease was due to declines in sales of EES, Methazolamide, Penicillamine and Vancomycin. These decreases were partially offset by the second quarter 2021 launch of Nicardipine and the third quarter 2021 launch of Nebivolol. The decrease in net generic revenues was due in part to a decrease in average selling prices, tempered by increased volumes among our generic products.

Net revenues for our branded products were $14.3 million during the third quarter of 2021, an increase of 15.3% compared to the $12.4 million for the same period in 2020. The primary reason for the increase was the April 2021 launch of the products acquired in the Sandoz Inc. acquisition. These increases were tempered by decreased unit sales of InnoPran XL. The increase in net brand revenues was due in part to higher volumes, tempered by a shift in mix towards brand products with lower average selling prices.

Contract manufacturing revenues were $2.4 million during the third quarter of 2021, compared to $2.2 million for the same period in 2020, due to a current year shift in mix towards customers with higher average selling prices, mostly offset by a decrease in the volume of orders. Our cost of sales, excluding depreciation and amortization, increased by $4.3 million or 21.3% to $24.4 million in the third quarter of 2021, mainly as a result of $2.2 million in cost of sales representing the excess of fair value over cost of inventory acquired in the Sandoz Inc. asset acquisition and subsequently sold during the period and increased volumes in the current year period. The increase was tempered by a $1.1 million decrease related to a decrease in sales of products subject to profit-sharing arrangements.

Excluding these purchase accounting-related charges and other non-GAAP items as detailed in our press release, our gross margin was 57.4% for the current year period as compared to 62% in the prior year period. The compression in gross margin is mainly attributable to increased volumes at lower average selling prices.

Research and development expenses decreased from $2.9 million to $2.5 million, a decrease of 16.4%, primarily due to a decrease in expense related to Cortrophin as we complete the development stage of the project. Selling, general and administrative expenses increased from $15.7 million to $17.2 million, an increase of $1.5 million or 9.3%, primarily due to the $500,000 of transaction expenses related to the pending Novitium acquisition and $2.1 million in sales and marketing expense related to Cortrophin prelaunch activities incurred during the 3 months ended September 30, 2021.

Adjusted non-GAAP EBITDA was $16.6 million in the third quarter, down 2% from the comparable period in 2020, principally due to declines in gross profit. As detailed on Table 4 of this morning's press release, our adjusted non-GAAP diluted earnings per share is $1.01 for the quarter compared to $0.97 in the prior year period.

On a year-to-date basis, we have generated $15.5 million of cash flow from operations. And as of the September 30 balance sheet date, we had $15.3 million of unrestricted cash and cash equivalents.

Total net debt as of September 30, 2021, increased $6.2 million to $187.6 million as compared to $181.4 million as of June 30, 2021. This figure represents 2.9x net leverage on a trailing 12-month basis.

As we look forward to closing out 2021, we continue to believe that we will achieve our original stated financial goals and therefore, reiterate our full year guidance with the continued orientation towards the low end of the range. Our 2021 guidance figures for ANI standalone prior to giving effect to the Novitium transaction are unchanged as follows: net revenues of $207 million to $218 million, adjusted non-GAAP EBITDA of $60 million to $65 million and adjusted non-GAAP diluted earnings per share of between $3.30 and $3.59 per diluted share.

We anticipate that our fourth quarter Cortrophin sales and marketing expenditures will continue to significantly increase as we accelerate activities in advance of our planned full-scale commercial launch in early Q1 of 2022. Our 2021 guidance figures assume that we continue to add back Cortrophin sales and marketing expense as prelaunch in the fourth quarter for purposes of our non-GAAP measures.

Finally, we are delighted to have received FDA approval for Cortrophin Gel and look forward to executing our strategic go-to-market plans in an effort to serve patients in need. In addition, we are excited to join arms with our new Novitium colleagues in the near future and collaborating to maximize the complementary strengths of our 2 organizations.

I echo Nikhil's comment that ANI is at an inflection point, and our entire team is energized by the promise of our future. This is an exciting time for ANI, and we appreciate the support of all of our stakeholders and our shareholders as we pursue our goal of bringing high-quality medicines to the U.S. health care system.

I'll now open up the call for questions. Operator, please go ahead with the instructions.

(Operator Instructions) We'll take our first question from Elliot Wilbur with Raymond James.

I just want to extend my congratulations to (inaudible) and the extended team on the approval of Cortrophin. I know it's been a long journey, more of a quest than a journey, but congratulations, and obviously, looking forward to the launch.

Nikhil, just a couple of questions for you specifically around the launch, and I understand you'll probably have a lot more to say about this in the near future. But anything you can say at this point in terms of steps or initiatives that have to take place prior to the actual launch, and specifically thinking about what we may see in terms of market preparation strategies, any additional team member additions, payer engagement initiatives? And where are you in terms of existing inventory levels necessary to support the launch relative to the initial uptake that the company sees at this point?

Yes. Thank you, Elliot, for your question. Look, to answer the second part of your question first, which is that we do have sufficient finished product inventory levels. You've seen that in the prior quarters as we've been building these inventory levels up to support the timely launch. So we do have sufficient finished product inventory levels.

Of course, with the labeling that has just been finalized and approved by the FDA, that needs to be reflected on the finished dose vials. So I think that's the answer to your question on inventory.

As far as our launch plans and commercial plans, thank you for approving to allow me to give you more information on this in the future. As I said earlier, we have significant ongoing investment in people and commercial infrastructure for our launch. And the key elements of our plan include a strong sales force, optimal market access and reimbursement, bespoke distribution, salient hub and patient support services, medical affairs and marketing and advocacy.

And look, we have onboard a very experienced and successful rare disease leadership team that has done multiple launches across organizations and have come together very well and in a focused manner been preparing for a launch. So I feel very confident that the same prioritization, focus and efforts that we brought to get this product approved under the guidance of the FDA, we will bring that same level of commercial acumen and relentless efforts to ensure that we serve patients in need, which is ultimately the goal of our company.

Okay. If I could ask you a follow-up question with respect to the label itself, how does the label actually compare to your expectations prior to the approval? And are there any indications on the current label that you think present an incremental opportunity, areas where maybe the legacy product has not been able to penetrate or be successful in just because of its price point or focus? Just whether or not you think there's opportunities for incremental growth maybe outside the 3 main indications that you highlighted in the release.

Yes. No, so you're absolutely right, Elliot. Cortrophin Gel is approved for all current ACTH indications with the exception of infantile spasms, which, as you know, from our understanding, is less than 10% of the market. Specifically, the FDA has approved Cortrophin Gel for the treatment of multiple chronic autoimmune disorders, including, as you said, the 3 main indications, which are acute exacerbations of multiple sclerosis and rheumatoid arthritis and in addition to excess urinary protein due to nephrotic syndrome. There are several other indications.

And then to your point on our product does have -- it's the only ACTH-based therapy that is approved for the treatment of gouty arthritis. So hopefully, that answers your questions.

Okay. And if I could just switch gears real quickly, just maybe a bit of an update on the Novitium acquisition. Just an update in terms of how the business has performed over the course of the year relative to the financial projections that you put out there when you first announced the deal. And is there any update you can provide in terms of where the pipeline stands?

I know there's been quite a few approvals over the course of the year. I'm not sure how that compared to expectations, but haven't heard as much in terms of filings. Just kind of curious where that stands.

Yes. So overall, Elliot, Novitium has had 10 approvals since we signed the deal in March. And in terms of commercial performance, to the best of our understanding, is on track, it's actually a shade better than what we had expected. And that's obviously driven by the success of the new launches, many of which you've taken note of, several that have had CGT designation. And so the investment thesis is on track.

As far as the new filings, it is not typical in the generics business to announce filings unless it's a Paragraph IV filing, and you get sue. It's more typical to keep that confidential, so that you're drawing less attention to it.

And so Novitium's world-class R&D engine led by Samy and Chad continues to add exciting products to their pipeline that will continue to deliver and unlock new launches in the future. So that is absolutely on track and, in fact, ahead of our investment case.

Okay. And just last question, just a couple of quick ones for Steve. Specifically, Steve, can you just talk a little bit more about what you're seeing in the base generics business?

I guess, my takeaway is that maybe price deflation is a little bit higher than what has been anticipated, but you've been able to offset that with volumes. I'm not sure if that's accurate enough, but that seems to be kind of what's going on in the marketplace as a whole. And then just more specifically, just comment on accounts receivable trends over the last couple of quarters.

Yes. Sure, Elliot. Yes, in terms of the core generics business, as you know very well, the pricing trends right in the aggregate portfolio tend to follow the aggregate age of that portfolio. And so I would say in total, for ANI generics, price deflation has accelerated as the quarters have gone by, and your premise is exactly right. The team has very well come together to kind of really laser focus in on opportunities and where we could kind of do more with our existing commercialized portfolio as the pipeline comes along. And you started seeing that in the third quarter, right, with the Nebivolol launch.

The ANI generic launches were always back-end loaded for 2021, and Nebivolol was a nice late third quarter shot in the arm to our aggregate generics portfolio. And we look forward to continued strength there as well as other launches as the fourth quarter kicks by.

And it really circles around right to the investment thesis behind the Novitium deal and bringing in that internal R&D, where we can accelerate the cadence of our generic launches to kind of prop up that pricing component of the overall generic portfolio.

In terms of AR, the trend kind of goes along with that decrease in average selling prices just because the way that the receivables work and track for the generic portfolio, right, the reduction in average selling prices largely manifest itself in higher chargeback rates. And as those chargeback rates increase, it allows our big 3 wholesale customers to kind of stretch out their net payables to us. And so that's why you see the AR kind of creeping up and the DSO creeping up. And we expect that to kind of come back to more normalized levels as again, we get the generic launch cadence up post Novitium deal close. Hopefully, that helps.

Yes.

Before we move to the next question, just 2 things to add, Elliot, for you and the others there. One is we have seen some pickup in the volumes also from post-COVID pickup. And that's helped on parts of our base business.

And then the second thing is that, look, we are confident, and we're seeing it play out, as Steve was talking about regarding the investment thesis, that the pace of new launches between Novitium and their launches as well as the ANI-based launches will outpace the erosion that we're seeing in our base business. And that's the whole basis for the investment and acquisition of Novitium. So I just wanted to reiterate that.

(Operator Instructions) We'll take our next question from Brandon Folkes with Cantor Fitzgerald.

Congratulations on the approval. Granted you don't really give away much of your competitors' strategy. But can you just talk about maybe how physicians will make prescribing decisions between your product and Acthar? What may make the prescriber of Acthar switch to your product? Or what do you believe it would take for a non-writer to now write Cortrophin Gel?

And then secondly maybe, are you open to a partnership on Cortrophin in some specialties now that you have an approved product in hand? Do you think that's something we could see in terms of maybe your noncore focus? Or should we think of you getting everything in-house?

Yes. Thank you, Brandon. I'll take your second question first, which is, are we open to partnership. At this point, we are contemplating launching across indications ourselves. But as wise mentors have told me over the years, never say never. So yes, that's something that, as we're required to, we will evaluate as potentially those partnerships come up.

And then with regards to why would a prescriber write Purified Cortrophin Gel versus the competing product, I'm not going to share that secret sauce with you. But I will say that you should be assured that we have spoken to many, many prescribers and have a clear understanding of a willingness and eagerness really to bring another treatment option for patients that need this. And I'll leave it at that.

There are no further questions at this time.

Nikhil, you might be on mute for your parting comments.

Yes. Thank you, Steve, and thank you for your time to everyone this morning. We really appreciate it, and thank you for your support of ANI. ANI truly is at an inflection point to transforming into a leading biopharmaceutical company serving patients in need and well poised for the next period of significant growth. And thank you again for your time this morning. Thank you.

Thanks, everyone.

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