ANI Pharmaceuticals Inc (ANIP) 2020 Q3 法說會逐字稿

Good morning and welcome to today's program. My name is Nicole, and I'll be your conference operator. At this time, I would like to welcome everyone to the ANI Pharmaceuticals Third Quarter 2020 Earnings Results Conference Call. (Operators Instruction] As a reminder, this call is being recorded today, November 5th, 2020.

It is now my pleasure to turn the floor over to Ms. Lisa Wilson, Investor Relations for ANI Pharmaceuticals. Please go ahead.

Thank you, operator. Welcome to ANI Pharmaceuticals, Q3 2020 Earnings Results Call. This is Lisa Wilson of Insight Communications, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, our new President and Chief Executive Officer and Stephen Carey, Chief Financial Officer of ANI.

You could also access the webcast of this call through the Investor section of the ANI website at 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 November 5, 2020. 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. It is an honor to be with you today in my role as President and CEO of ANI Pharmaceuticals. Before we dive into our third quarter results and business update, I'd like to express my appreciation to essential workers, health care providers, first responders, teachers and scientists everywhere for their unstated efforts during the COVID-19 pandemic. I'm also grateful for the strong commitment shown by ANI team in conjunction with our customers, suppliers, and manufacturing partners to ensure that we continue to supply medicines to patients. Let me also share a little bit about my background, why I joined ANI and some initial thoughts on ANI's promising opportunities. I've been in the healthcare industry for roughly 2 decades with the majority of that time spent on specialty pharmaceutical. Prior to joining ANI in September, I held several roles at Cipla, most recently as CEO of Cipla USA where I oversaw a period of rapid growth.

My experience spans branded products, generics and CDMO business lines. And functionally, my responsibilities have included multi-year strategic planning, accelerating growth through M&A and Business Development, portfolio development and commercialization and overall P&L and balance sheet optimization. I have also worked very closely with the FDA on the launch of several complex products.

These broad functional and leadership experiences in biopharma are immediately relevant here at ANI. I consider myself to be a growth-oriented leader and I'm proud of my track record of building cohesive and productive teams that deliver results. All of which I believe align with ANI's goals, which brings me to why I found the ANI opportunity so attractive. I see enormous capacity for growth, both organically and inorganically and the potential to build on the core strength of the business. ANI has a significant opportunity with the Cortrophin Gel, I will discuss that more in a few moments. ANI has a diverse portfolio of commercialized branded and generic products and a robust portfolio of ANDAs, several of which have limited competition.

We also have a strong North American manufacturing footprint that has become more valuable and can be leveraged further both for serving commercial customers, CDMO clients and the US government. Manufacturing includes a high potency hormone facility in Baudette. And lastly, we have a very strong track record in finding accretive inorganic, branded generics and CDMO deals to support the organic growth. In my first 2 months to joining ANI, I have invested a great deal of time studying Cortrophin and familiarizing myself with the intricacies of the supplemental new drug application or sNDA. Based on my observations to date, I can confirm that all stakeholders are working toward a successful refiling in Q1 of 2021 and a subsequent launch.

In addition, I have worked diligently to better understand the drivers of operating performance, execution, capabilities, talent and culture. I toured the Baudette Minnesota Facility in person and due to COVID constraints, toured the Oilfield plant in Canada virtually. I have conducted dozens of one-on-ones and several some small group discussions with our team. I have also been speaking with our commercial customers, CDMO clients, key suppliers and other stakeholders. This has allowed me to get a preliminary understanding of where we are strong, where improvements need to be made, and what we need to do to realize the opportunities ahead of us.

And importantly, moving to 3rd quarter results and business update, we have begun to see some rebound after Q2 in select parts of our branded and generic portfolios. We reported 3rd quarter 2020 net revenues of $53 million, adjusted non-GAAP EBITDA of $17 million and adjusted non-GAAP diluted earnings per share of $0.97. ANI has continued to monitor closely the impact of COVID related dynamics on our business operation and we have adapted our plans to deal with its impact. Steve, will share a more detailed overview of our Q3 results in a few moments. Let me turn now to our work on the Cortrophin Gel program. First, on the regulatory process, we are focused on resubmitting our sNDA in Q1 2021. We continued making significant progress in assembling a robust and compelling package to submit to the FDA. In parallel, we are working on the operational and commercial readiness for launch. We remain confident in both the quality of our sNDA filing and our market access, demand generation and patient support plans for Cortrophin.

Before I turn the call over to Steve, I want to share a few final thoughts as I begin my tenure as CEO. First, I truly appreciate the Trust placing in me in this role. Together with our board members, both the long-standing members and our new board members, we will be laser focused on driving shareholder returns. I will share our ambition, long-term strategy, and operational plan along with the full year 2020 results in February. That said, we are not waiting until February to get started. As I speak, we are evaluating strategic inorganic opportunities working towards increasing the pace of new launches from our ANDA library leveraging our manufacturing network further and maximizing value capture from current products. And we remain focused on the Cortrophin Gel re-filing and commercialization, placing the necessary resources and attention required as a crucial priority for the company. I'll conclude by saying that I'm excited to be here. I believe I bring fresh energy and perspectives to ANI and I will work tirelessly to bring value to our stakeholders to build relationships between ANI and the investment community and to ensure that patients and prescribers have access to our therapeutics.

With that, I will turn the call over to Steve.

Thank you, Nikhil, and good morning everyone. On behalf of the entire ANI team, we are very excited to be working alongside Nikhil as we continue to build and strengthen ANI. We have already formed a very significant level of partnership and the team is confident as we look to the future.

Turning to the quarter, net revenues for the 3rd quarter of 2020 were $53 million versus $51.3 million in the 3rd quarter of 2019, principally due to increases in sales of generic products. Sales of our generic products were $37.7 million during the quarter, up 19% from the same period in 2019, primarily due to the January 2020 launch of Miglustat, Penicillamine, and Paliperidone. All of these products were acquired from Amerigen and have continued to perform well. The increases were mainly offset by declines in revenues of Ezetimibe Simvastatin, Vancomycin Capsules, and Methazolamide. All of which had increased competition in the period as compared to last year.

Net revenues for our branded products were $12.4 million during the third quarter of 2020 down 25% from the prior year period. Mainly due to lower unit sales of Inderal XL, InnoPran XL and a decline in revenues of Atacand. Our cost of sales excluding depreciation and amortization increased by $5.1 million to $20.1 million in the 3rd quarter of 2020, primarily due to increased volumes related to a negative mix toward generic products and increased sales of products subject to profit-sharing arrangements driven by the products acquired from Amerigen. Cost of sales as a percentage of net revenues increased to 38% during the 3rd quarter of 2020 from 29.2% during the same period in 2019.

Research and development expenses decreased in the 3rd quarter of 2020 to $2.9 million, compared with $5 million in the 3rd quarter of 2019, primarily due to a decrease in expense related to Cortrophin as we begin to complete our development efforts. We currently anticipate that Cortrophin related expenses in Q4 2020 will be moderately higher than those in the 3rd quarter as we continue to focus on our supplemental NDA resubmission efforts.

Adjusted non-GAAP EBITDA of $17 million was down $2.8 million from the prior year, principally due to the reduction in gross profit. As detailed on Table 4 of this morning's press release, our adjusted non-GAAP diluted earnings per share is $0.97 for the quarter, as compared to a $1.23 in the prior year period.

As of September 30th, we had $17.9 million of unrestricted cash and cash equivalents. Our cash balance is reflective of $21 million of cash flow generated from operating activities during the first 9 months of the year and is net of $7.5 million of repayments of Q1 borrowings from the revolver associated with the Amerigen acquisition.

Total net debt as of September 30, 2020 increased to $171.4 million as compared to $164 million as of June 30th of this year. This figure represents 2-and-a-half times net leverage on a trailing 12 month basis. From a capital allocation standpoint, we generated healthy levels of positive cash flow from operations and continue to expect to selectively invest in business development opportunities. Currently, $67.5 million of the $75 million revolver portion of our credit facility remains undrawn and provides us with flexibility in continuing to further pursue business development transactions in the balance of 2020. We continue to closely monitor the impact of the Corona virus pandemic on our business while we did not incur significant disruptions during the 3 months ended September 30, we are unable to predict the future impact of the COVID-19 pandemic will have on our business, financial condition and results of operations due to numerous uncertainties.

With that, I'll now open the call for questions. Operator, please go ahead.

[Operator Instructor]. The first question comes from the line of Dana Flanders of Guggenheim.

Nikhil, I wanted to just focus in on maybe 2 comments you said during your prepared remarks and opportunities that you're getting ready for and 2 of them were accelerating the -- your end of pipeline bringing those products to market. Was wondering if you could comment on how big of an opportunity for you that is, and I guess what's changed across the broader generic market to allow you to do so. Are you seeing more stability and stable competition opening up pockets of opportunity? And then number 2, you mentioned inorganic M&A, was curious to get your philosophy on leverage and maybe talk around your strategic priorities out of the gear. Are you focused a little bit more on brands, on generics, and what strikes you as particularly attractive as you kind of evaluate the landscape?

Yes. Thank you, Dana. So I'll take, I think the 3 parts to your question. The first one is on accelerating the ANDA. So we have a large library of about 19 plus ANDAs, and a pipeline of ANDAs through various acquisitions and BD deals and several of these products have limited competition and potentially higher value and this is something that we're monitoring on a regular basis both in terms of understanding what's happening with the competitors that are on the market, but also in conversations with our customers and so we're working to prioritize and accelerate time to market for these launches. This is something that I have done successfully in the past and I'll bring that experience here. You then asked about the overall trend in the generic market, and I think there is some evidence of improvement in the slope of the decline. I think COVID has made buying groups more conscious of the quality of the supply in addition to price consideration.

The competitive intensity remains high. There are still good opportunities in the sector and with the broad push regardless of who wins the election, which president wins the election; generics will continue to be part of the answer of bringing the cost down of drugs, 80% plus of U.S. volume is in generics and there is a significant push on US manufacturing and U.S. is -- I'm sorry and ANI is very well positioned to capture that with almost 200,000 Square feet of manufacturing footprint in the US and another 100,000 Square feet of manufacturing footprint in Canada.

When it comes to acquisitions, but the deal environment is very rich, especially those that help us enhance our capabilities and scale. There is definitely more activity right now than there was 6 to 9 months ago. Having said that, we can take a disciplined measured approach to evaluating opportunities that will allow us to enhance our scale and capabilities in branded products, CDMO, and generics business lines. This includes pursuing both commercial and pipeline opportunities. And I think the third part of your question Dana, was on the overall strategic path forward. So look, as I mentioned in my prepared remarks, I'm in the process of conducting a comprehensive assessment of drivers of our operating performance, execution, capabilities, talent and culture and putting together a map of where we are strong, where improvements need to be made, and where the attractive opportunities are in the market for ANI. I'll share our ambition, long-term strategy, and operational plan along with the full year 2020 results in February.

The next question will come from the line of Elliot Wilbur with Raymond James.

Welcome, Nikhil. I wanted to ask a couple of financial questions just real quickly as Steve. Specifically, could you just maybe walk through some of the components of operating cash flow trends in the quarter; looks like, cash flow from operations was negative $40 million and not sure I can see all of the elements that necessarily led to that, just want to get some perspective there? And any early commentary on 4Q trends, I guess in light of resurgence of the pandemic in certain areas. I know that you talked earlier about numbers kind of getting back to pre-COVID levels and sequential growth throughout the year. I'm just wondering if that's still kind of a realistic expectation in the 4th quarter based on what we're seeing currently.

Sure. So good morning, Elliot, and thanks for the insightful question. And, so -- so on the cash flow and just, I think you misquoted, I think you said, it looked like the quarter was negative $40 million. I think it's more like $400,000. So yes, our year-to-date cash flow generation at, you added a zero to the.

Just a little off.

But that's fine, that's fine. It's early yet, no worries with that. But yes, so good observation. So cash flow from ops for the first 9 months of the year is essentially equal to cash flow from ops for the first 6 months of the year. And the main part of that phenomenon is really kind of a continued, call it, a cash flow hangover from the Amerigen acquisition. So while we purchased a portfolio of currently marketed products, rate and slotted them directly into -- into our sales and marketing group, and kind of selling them out of the gate they won, that portfolio, even though we do that from a commercial standpoint, it's essentially operating as if we launch those products, day one on January 9th, not entire portfolio. And so given the strength of the, the customers in this environment, right and the consortiums and certain clauses in terms of launch products, you do get a delay of cash flow from -- from those “launches” and so, I do anticipate that to start turning here, as we round the corner into the 4th quarter and certainly as we round the corner into the first quarter of the coming year. So that's the phenomenon there.

In terms of the 4th quarter trends, look we, I think as you see in the sequential numbers today, right; the 3rd quarter numbers were fairly stronger compared to Q2. As we talked about on the Q2 call, right; ANI is not immune to the COVID-19 impacts that we're seeing kind of industry-wide and in a likewise manner in the third quarter, we've seen a nice rebound in terms of prescription volume sequentially, but it's still not to the levels of pre COVID-19 levels. And so the wild card rate as everybody looks forward to the fourth quarter is how does COVID-19 develop, whether it's in pockets across the US or more nationally. Obviously, we're all hoping that that does not occur, but that's clearly the wild card. For the industry and by extension, it's the wild card for ANI. So barring any significant trends there, we remain optimistic as we look out to the next couple of quarters here, but we're always going to be cautious given the evolving COVID-19 situation.

And then just a couple of questions for Nikhil as well. Just want to get a sense of your perspective of sort of the relative opportunity set, the company has in front of it in terms of being able to reintroduce various pipeline assets, ANDAs have been acquired over the years and whether or not that in and of itself would be sufficient to drive growth in the, in the short term. I mean obviously financial market seem to value the company in line with other larger generic companies that frankly have declining businesses and no real prospect of turning those around. So just want to get your perspective on whether or not you think that there is a, there is a, a positive growth outlook here in the short-term based on assets in the books or maybe transactions that are kind of a later stage of evaluation versus having to actually go out and buy assets to drive growth in the business?

Yes. Thank you, Elliot. So look, I think in terms of growth drivers, Cortrophin Gel is a crucial opportunity for the company. We are preparing what we expect will be a robust package ready for refiling in Q1 of 2021 and a subsequent launch, so I think that would be growth driver number one. I think you know the other areas of growth which are important to consider is, number one is leveraging the increasingly important in US and North America manufacturing footprint including the hormone facility that we have in Baudette. So this is in that manufacturing network that we can leverage a lot more given the increasing important and value that is being assigned to US manufacturing.

As we spoke about before, the value capture from bringing accelerated new launches from our portfolio of ANDAs in our pipeline and library, especially those with limited competition, is it will be an important step and maximizing the value capture from our existing branded and generics assets and the CDMO clients. I mean, remember we acquired the Amerigen business and a number of those products were launched this year. There is still opportunity to deliver more share and revenues from some of those products. And so that's something that we will look to to continue doing. And look, even prior to me showing up, ANI has done a tremendous job of doing very thoughtfully disciplined executed deals, so we continue to evaluate strategic inorganic opportunities to enhance the scale and capabilities in all 3 segments, brand products, generics and CDMO business.

Okay. Maybe Nikhil, if I could just follow-up and ask you a question with respect to kind of where you see sort of the, the best relative opportunities in terms of, in terms of discretionary capital deployment, whether it be pure generic assets, branded assets, 505(b)2s obviously or all of the above. And I guess the question is, the company historically has done a very good job of doing high ROIC deals in the branded arena, buying products that generate significant returns but necessarily don't necessarily have any growth associated with them. So just wondering how you are kind of viewing those opportunities vis-a-vis what seems to be sort of an increasing demand from financial markets for evidence of growth versus just high ROIC metrics.

Yes. So that's a good question Elliot. I think couple of responses. One is, these are good questions that I'm evaluating. As I mentioned previously, I will share our ambition, long-term strategy, and operational plan along with the full year 2020 results in February. So I will do that. And then, as I mentioned in the prepared remarks, I am a growth-oriented leader. It's, I oversaw a period of rapid growth as CEO of Cipla US and that's how I am oriented, and it's fortunate that the markets reward that too. So I do plan to continue that strong track record of delivering results and delivering growth and the path to that, I will share along with our full year 2020 results and the relative, I think your question is allocation of capital and allocation of resources between the business lines. I will share more about that when we share the full year 2020 results in February.

[Operator Instruction] The next question will come from the line of Brandon Folkes of Cantor Fitzgerald.

Nikhil, congratulations on your appointment. And you talked about manufacturing footprint. Can you just give some color in terms of your capacity utilization in those facilities? Is this the capacity which should we think about you replacing current lines with maybe a higher value-line there. And then secondly and Steve talked about the undrawn revolver. But Nikhil, how do you feel about your financial flexibility to execute on M&A as well as potentially invest behind the Cortrophin launch next year?

Yes. Thank you, Brandon. I think there was 2 questions you asked. I think the first one was on the manufacturing capacity. I'm happy to share with you that there is capacity available across all 3 sites, both the sites involve that as well as the site in Oakville, Canada. So when we talk about leveraging the manufacturing network, it's by increasing the utilization and there is material opportunity there. Obviously, we have to work through how to operationalize and capture some of those opportunities, but there are opportunities to drive growth by leveraging that manufacturing network further.

And then coming to the capital allocation, I'll start, but then Steve if you want to jump in. But we think to continue to take a disciplined measured approach to where to allocate the capital across the different areas. As regards to Cortrophin, Cortrophin is a crucial priority for ANI and we have appropriately dedicated our resources to advance this product and plan to continue doing so. As you are aware that we are getting ready for a robust full sNDA submission in Q1 and in parallel, we have started working on operational and commercial readiness for the launch rate. This includes market access, demand generation and patient support plan. So absolutely Cortrophin is a crucial priority opportunity for ANI.

Yes.

Steve, you'd like to add?

Sure. Yes, I'll just add to that. Clearly on the M&A front, clearly, you'll continue to see kind of the diligence and the discipline in terms of balancing the opportunities, which the balance sheet discipline and not getting too far over our skis in terms of leverage profile. I think within that right rate and kind of what you've historically seen ANI do is to pursue assets that are EBITDA generating, right; and so whether that's in the form of continued portfolio tuck-ins or something broader that starts to enhance ANI's organizational and structural capabilities. I think in this phase, it's always going to be towards, with an eye towards EBITDA generating and cash flow generating assets. So that's part of the balance there Brandon.

And obviously as embedded in your question and as Nikhil says right; Cortrophin, we're laser focused not only on the regulatory filing and pushing that to success, but also readying the organization for the efforts that will be required to successfully launch that product, and so that's part of the plans that we're evaluating. But I would point out in terms of capital allocation, we're not starting from with zero dollar spend where you've seen in 2020, the company invests behind prelaunch inventories roughly rate, big picture, little bit over $8 million year-to-date and on a full year basis we have, I think the forecast of between 11 and 15 depending on how the timing of certain shipments fall and break around December 31, right. So some of that spend will not need to be replicated in advance of the launch rates. So we'll be able to allocate some of that spend towards the sales and marketing efforts and build from there.

Steve, one follow-up if I may. That 8 million, you referenced in terms of inventory. Is that across the portfolio or was that Cortrophin?

That's Cortrophin specific, right. So if 2020 is kind of building prelaunch inventory, so I'm not saying there will be zero of that in 2021, but you know I would expect that to moderate as we start to pivot towards SG&A type activities.

And then maybe just following up on that. What is the shelf life of your Cortrophin product? So I think I thought of 18 months. So just any color on your shelf life would be great.

Yes, let me take that Steve.

Sure.

So I didn't want to say exactly the same thing, but you know as you're aware, as you will appreciate that from a competitive standpoint, it is best for us not to share specifics of this information right now. We are confident of the quality of our filing and the quality of our products and, and also, this is with the FDA or will be with the FDA and the FDA gets to adjudicate that. So we would prefer to not share specifics on that right now.

With that we are showing no further audio questions. I will now hand the conference back over to Nikhil for closing remarks.

Yes, thank you all for your time today. This is Nikhil again. I appreciate the opportunity to lead ANI. I look forward to getting to know many of you personally, to invigorating our regular cadence of communications and to taking full advantage of the core strengths of our business. I have every expectation that as we enter this new chapter, we can achieve great things and deliver value to our shareholders. And in these uncertain and unprecedented time, please take care of yourselves and your families and friends and stay safe. Thank you for your support.

This does conclude today's conference call. Thank you. We appreciate your participation and (inaudible)