ANI Pharmaceuticals Inc (ANIP) 2023 Q1 法說會逐字稿

Good day, everyone, and welcome to today's ANI Pharmaceuticals' Q1 2023 Earnings Call. (Operator Instructions) Please note this call will be recorded. (Operator Instructions)

It is now my pleasure to turn today's call over to Judy DiClemente. Please go ahead.

Thank you, Ashley. Welcome to ANI Pharmaceuticals' Q1 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 of ANI. 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 May 8, 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'll turn the call over to Nikhil Lalwani. Nikhil?

Thank you, Judy. Good morning, everyone, and thank you for joining our call. ANI remains focused on 2 strategic imperatives designed to help us serve patients in need and drive profitable and competitive growth.

Firstly, the scale-up of our Rare Disease business with the successful launch of our Lead Rare Disease asset, Purified Cortrophin Gel and the potential to add assets that leverage the Rare Disease infrastructure we have built. This business will be the largest driver of ANI's growth.

The second imperative is driving Generics business growth through superior new product launch execution, cost excellence and supply reliability. These efforts coupled with our enhanced operational excellence have enabled ANI to compete and win across our core business segments and to generate record quarterly net revenue of $106.8 million for the quarter and record quarterly adjusted non-GAAP EBITDA of $33 million.

Our outstanding operational performance demonstrates the strength we've built in our core business segments, and I congratulate the team for their hard work in achieving these outstanding results announced this morning.

On the Rare Disease front, we continue to invest in the launch of our foundational Rare Disease asset, Purified Cortrophin Gel. We strengthened the team and improved how we're servicing patients, physicians and payers, which has accelerated our launch momentum and increased access to ACTH therapy for patients in need.

As noted on last quarter's earnings call, for competitive sensitivity reasons, we will no longer be providing more detailed metrics on Cortrophin. However, we are pleased to report that the acceleration of our launch momentum is evidenced by the record quarterly number of new cases initiated in Q1 2023 and record monthly new patient starts and cases initiated in April of 2023. We're also seeing continued growth in the number of new unique prescribers and repeat prescribers.

In fact, many prescribers who have previously slowed or discontinued use of the ACTH class, have restarted their use of ACTH therapy after the launch of Purified Cortrophin Gel. Our promotional efforts are focused on rheumatology, neurology, nephrology and pulmonology. We have ramped up peer-to-peer education programs across our 3 target specialties of rheumatology, neurology and nephrology to further increase awareness of Cortrophin Gel.

In addition, we have completed recruitment of and onboarded a modest and dedicated pulmonology sales team. Central to our Cortrophin Gel launch has been our efforts to increase market access for the ACTH class for appropriate patients in need. A critical relevant trend to highlight for the Cortrophin Gel launch is the growth in the overall ACTH category.

Prior to the launch, the ACTH category had continued to decline and according to IQVIA has not shown year-over-year unit growth since 2019. ANI launched Cortrophin Gel in January of 2022. And from June of 2022 to March of 2023, for 10 consecutive months, the ACTH category has shown year-over-year unit growth according to IQVIA.

In fact, in the first 3 months of 2023, the year-on-year category unit growth has been in the double-digits. First quarter net revenues of Cortrophin Gel were $16.3 million, which was in line with our expectations and bolsters our confidence in our full year Cortrophin Gel revenue guidance of $80 million to $90 million. We're pleased with the progress of this launch and look forward to enhancing the scale and scope of our Rare Disease business. We continue to actively explore adding other assets that can leverage our Rare Disease infrastructure.

Next, I will turn to the Generics, established brands and other revenue segment, which increased to $90.5 million, an increase of 43% over the prior year. These results showcase our ability to use our U.S. manufacturing footprint and agile operations to deliver timely solutions to our customers.

During the past 2 years, we have enhanced ANI's operational excellence by combining long-standing strength in manufacturing and our strong GMP track record with best-in-class research and development capabilities, all with a patient-first orientation. This has enabled us to capture market demand arising from the numerous supply disruptions impacting patient access to much needed medicines. We have increased our R&D investment with focus on niche opportunities. We continue to file new -- multiple new ANDAs in the first quarter of 2023 and retained our top 10 ranking in the number of ANDA approvals.

We have also retained our #2 ranking in Competitive Generic Therapy approvals in 2023. Our efforts to drive cost excellence have included the consolidation of our manufacturing network with the rationalization of manufacturing operations in Oakville, which is now completed. Discussions with potential buyers for the Oakville site are ongoing.

In addition, we have augmented our analytical and development facility in Chennai, India, with over 60 skilled colleagues. Equally important are our efforts to ensure supply -- reliability of supply. We have a strong compliance and audit track record enhanced further by recent successful FDA audits across all 3 sites. In fact, our New Jersey site was inspected on March of 2023 and had 0 483s and an NAI status.

Last, but not the least, we continue to maintain healthy inventory levels for finished goods and raw materials, allowing us to capture any opportunities arising from market disruptions. These achievements demonstrate ANI's ability to deliver sustainable, competitive and profitable growth while keeping the patient at the center of everything we do.

The overall trajectory of our business boosts our confidence in the 2023 outlook, and we are therefore raising full year revenue guidance to between $385 million to $410 million and adjusted non-GAAP EBITDA guidance to between $97 million and $107 million and adjusted non-GAAP EPS guidance to $2.99 to $3.45.

Steve will now walk through our detailed first quarter financial results and discuss the revised guidance for the year 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 first quarter of 2023 capitalizing on the groundwork we have laid over the past 2 years to build sustainable growth platforms and strengthen the capabilities of ANI.

We saw growth across our core businesses, generating record first quarter revenues of $106.8 million, marking the first time in ANI's history that our quarterly revenue has surpassed $100 million. This represents $42.3 million or 66% growth over the $64.5 million reported in the first quarter of 2022 and is up 13% sequentially from the $94.2 million of revenues reported in our previous record fourth quarter of 2022.

It is important to note that this is the first quarterly reporting period where results are on a consistent basis with our 2 growth catalysts: the acquisition of Novitium, which closed in November of 2021; and the launch of Purified Cortrophin Gel, which occurred in the first quarter of 2022.

As such, first quarter of 2023 performance is reflective of organic growth at the company. Revenues from Cortrophin reported in our Rare Disease segment were $16.3 million in the quarter, up $15 million from prior year. We are pleased with this result, and it is in line with our expectations.

Further, we believe this level of first quarter performance creates a strong foundation for achievement of our full year 2023 Cortrophin revenue goals. Revenues of our Generics, established brands and other segment rose $27.3 million to $90.5 million, an increase of 43% over the prior year and $13.8 million or 18% as compared to the fourth quarter of 2022. These increases were driven by a $14.6 million gains in our generic pharmaceutical products, an increase of nearly 30% year-over-year and a $12.7 million gain in our established brands, royalties and other category for an increase of 90% year-over-year.

The growth in this segment was driven by increased volume and ANI's strong commitment to U.S.-based manufacturing, excellence in generic product selection and R&D, and an informed and nimble team. These attributes when combined, enabled ANI to quickly and efficiently meet evolving market needs.

Operating expenses increased by 16% to $96.9 million for the 3 months ended March 31, 2023, from $83.7 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $3.4 million to $37.7 million in the first quarter of 2023 compared to $34.3 million in the prior year period, primarily due to a shift in product mix and increased volumes of sales of generic and Rare Disease pharmaceutical products.

In addition, during the prior year period, we recognized $3.8 million in cost of sales, representing the excess of fair value over cost for inventory acquired in acquisitions. There were no comparable expenses in the current year period, excluding the impact of acquisition accounting, stock compensation and the effects of our Oakville, Ontario plant closure, all of which are detailed in the tables contained in this morning's press release.

Cost of sales on a non-GAAP basis as a percentage of total non-GAAP net revenues decreased 13 percentage points from 47% in the first quarter of 2022 to 34% in the current year period, primarily as a result of favorable sales mix from the impact of higher sales of established brand, Cortrophin, and the net impact of annualization of new product launches in our Generic franchise.

Research and development expenses were $5.9 million in the first quarter of 2023, an increase of $0.7 million from the prior year period, primarily due to year-over-year timing of work associated with generic products, coupled with an increase in projects related to Cortrophin Gel in the 3 months ended March 31, 2023.

Selling, general and administrative expenses increased by 27% to $36.5 million in the first quarter of 2023 compared to $28.8 million in the prior year period, primarily due to a $3.4 million increase in sales and marketing expenses related to Cortrophin Gel and increased headcount costs, tempered by a $0.7 million decrease in transaction expenses related to the Novitium acquisition.

Depreciation and amortization expense was $14.7 million for the 3 months ended March 31, 2023, essentially in line with prior year. During the quarter ended March 31, 2023, we recognized a noncash fair value adjustment of $1 million related to the contingent consideration recorded in conjunction with Novitium purchase accounting. This is compared to $0.8 million reported in the prior year period related to this item.

In addition, we recognized $1.1 million of restructuring expense in the first quarter of 2023 associated with the closure of our Oakville, Ontario facility. No restructuring activities were recognized in the prior year period. We have excluded both the onetime charges resulting from this action as well as portions of the Canada results that are expected to be nonrecurring post-closure from our non-GAAP financial measures as detailed in the table in this morning's release.

Net income available to common shareholders for the first quarter of 2023 was $1 million as compared to a net loss of $20.5 million in the prior year period. Diluted GAAP earnings per share was $0.06 per share as compared to $1.27 loss in the prior year period. GAAP earnings per share reflect significant amortization and purchase accounting-related charges related to the Novitium acquisition, coupled with Oakville related restructuring activities.

On an adjusted non-GAAP basis, we had diluted earnings per share of $1.17 per share for the quarter compared to a loss of $0.12 per share for the prior year period. Adjusted non-GAAP EBITDA for the first quarter of 2023 reached a new company record of $33 million and reflects significant gross profit pull-through from the strong revenue performance. This is an increase of $28.7 million compared to the $4.3 million reported in the prior year period.

Importantly, adjusted non-GAAP EBITDA also rose $9.7 million on a sequential basis, up 42% from our previous record $23.3 million in the fourth quarter of 2022. From a balance sheet perspective, we ended the quarter with $67.8 million in unrestricted cash, driven by cash flow from operations in the quarter of $21.4 million. This compares favorably to cash used in operations of $18.9 million in the prior year period. We have $296.3 million in face value of outstanding debt, which is due in November of 2027. In addition, we have $40 million of untapped capacity in our revolving credit facility.

Finally, as outlined in this morning's press release, we are pleased to raise full year 2023 guidance as follows. We raised total company expected net revenues to between $385 million and $410 million, up from the previously issued guidance of $360 million to $385 million, representing approximately 22% to 30% growth as compared to the $316.4 million of net revenues recognized in 2022. We raised total company adjusted non-GAAP EBITDA to between $97 million and $107 million up from previously issued guidance of $78 million to $88 million, representing approximately 74% to 91% growth as compared to the $55.9 million recognized in 2022.

We raised total company adjusted non-GAAP earnings per share to between $2.99 and $3.45, up from previously issued guidance of $2.09 to $2.59, representing approximately 120% to 154% growth as compared to the $1.36 reported in 2022. We maintain Cortrophin specific revenue guidance at between $80 million to $90 million, representing 92% to 116% growth as compared to the $41.7 million recognized in 2022, and we continue to expect 2023 Cortrophin SG&A to increase approximately 10% over 2022 to account for a modest sales force expansion.

And we now project total company non-GAAP gross margin of between 60% and 62.5% as compared to previously issued guidance of 59.5% and 61%. In addition, we currently continue to anticipate between $16.8 million and $17.1 million shares outstanding and an effective tax rate of approximately 24%.

With that, we will now open up the call to questions. Operator, please announce the instruction.

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

First question for Nikhil and Steve as well, just wanted to dive a little bit deeper into the overperformance in the base business, Generics and brands and royalty lines specifically. Was that a dynamic that emerged late in the quarter? Or do you simply now have more visibility on the continuation of some of the favorable trends that you're seeing versus what you had previously anticipated, I guess, in early March when you provided initial 2023 guidance?

And then just if you could provide a little bit more granularity in terms of some of the key drivers, whether we're talking about competitive wins in the Generics business, benefit of contract pricing perhaps or just new launch dynamics? Maybe just a little bit more granularity on where the actual overperformance is coming from? And I've got a couple of follow-ups.

Sure. So to the first part of your question -- maybe I'll take the second part of your question, which is one of the specifics around these trends. So look, ANI's robust results in our Generics, established brands and other segment showcases our ability to leverage our U.S. manufacturing footprint and our agility in operations to deliver solutions to our customers.

Now this has enabled us to capture market demand arising from the supply disruptions impacting patient access to much needed medicines. We see this as a positive trend impacting our business due to several structural factors. And there's a mix of factors, right? There are product-specific issues. There are manufacturing site-related issues arising from FDA audit outcomes. There are company-specific financial issues such as Chapter 11 and Chapter 7 situations, and there are broader market-driven opportunities.

While the mix of these issues will change, this trend is there -- is here and may be likely to continue, and ANI remains well positioned with our U.S.-based manufacturing, dedication to supply chain and manufacturing excellence and nimbleness as an organization to capture these opportunities.

Now I would also reiterate that first and foremost, the first quarter performance represents strength across all core businesses. And as Steve noted in his remarks, this is reflective of organic growth of the company, right? And these include strength of new product launches in Generics, the continued evolution of our Cortrophin launch and the impact of innovative go-to-market strategies in our established brands business. So that's the second part of your question, Elliot.

And then on your first part of -- what do we know in March versus now. So look, at any given point, we're giving the best information available to us, right? So while this trend may have started earlier in the quarter, we wanted to give it some time before we went ahead and reflected that, right? So our best thinking is reflected in the guidance we gave in March and as we had more visibility where we've raised the guidance.

And a follow-up for Steve as well. Going back to subject matter, I guess, we discussed more than usual last quarter and that being cash flow, looks like you generated operating cash flow of just over $21 million in the quarter. Working capital looks like it's now neutral versus a negative as it's been for several periods now. But you're still seeing increases, I guess, in some of the larger working capital asset account. So just wondering with the increase in full year EBITDA guidance, how should we be thinking about cash conversion and cash flow performance versus what we saw in the first quarter? And are there any other chunkier items that may work to your benefit over the course of the year now that you've got that $20 million plus contingent liability on the balance sheet?

Yes, Elliot. So obviously, we're very pleased with the cash conversion in the first quarter. Again, we posted $21.4 million of cash from operations. And right, it's dramatically in line with everything that we've discussed on the evolving calls throughout 2022 and the year-end call just back in March, right, that the 2022 era where the company was using significant amounts of cash to stand up the Cortrophin Gel launch and to stand up the Rare Disease business within ANI, that those chapters are starting to be in the rearview mirror, so to speak, right? So when you couple that track that we were on with a very significant and healthy quarter, you have a significant [unlock] of cash in the first quarter.

Looking forward, we would obviously expect that to track with our P&L guidance. So I think we're very confident and having increasing level of confidence in terms of the cash generation that we expect from the business as we look forward to the next 3 quarters.

Obviously, cash tracks the P&L performance and lags it by a bit. And to your question about chunky items, I think the only -- the few that I would highlight, right? So I talked in the prepared comments about Novitium contingent consideration. So we do anticipate that we'll have the 2-year anniversary of the Novitium transaction in November of this year, and that will kick off the first leg of contingent consideration payments to the selling shareholders. So we're currently anticipating about a $12.5 million payment in this year, and that would be the very first payment due to selling shareholders and there would be a second payment of a similar amount early in 2024.

So we're clearly planning for those events. And we're clearly more than happy to pay those contingent outflows because it's a very present indication of the strength of the transaction and the fact that the Novitium transaction has not only fulfilled our expectations but exceeded our expectations as we've combined that great business into ANI. So that's one on the outflow.

And then obviously, we've talked about the Oakville closure, right, which is -- from an operational perspective is fully complete at this time. So it was completed on track and on target with our time lines. That facility continues to be held for sale in Canada. Obviously, we can't predict the exact timing of when that sale will close, but we expect a nice cash inflow from that transaction.

And then last question for Nikhil. You highlighted a lot of the continued positive trends in the uptake of Cortrophin and specifically thinking about indications that new patient starts -- new patient initiations were at record levels in April. Do you have any sense as to whether or not these are new to therapy or treatment-naive patients versus potential switches from your competitor in the marketplace? I guess the reason I asked the question is some of the data out there [I've read] it's relatively low frequency, may not be that high quality, but some of the data shows a fairly sharp uptick in terms of switches to Cortrophin from your competitor. And not sure if that is accurate or not in terms of what you're seeing? And if so, any thoughts as to what may have impacted that?

No, Look, I think it's a mix. So it's a mix of patients that are naive to the therapy as well as patients that are switching. What I will say is there is -- as I was saying, we've ramped up our efforts to increase awareness of Cortrophin Gel. And obviously, there's an increase in the number of new prescribers as well as repeat prescribers. And so with repeat prescribers, what you will see is that as they start using Cortrophin Gel, they -- and see the many parameters of the use, right, the time from enrollment to fulfillment, the impact to the patient, the engagement with the company, I think all of those factors drive their -- the HCP to think about shifting their usage, right?

And as I also mentioned in my prepared remarks that there is a number of prescribers that used to use ACTH therapy that had just stopped over the years or had reduced their usage significantly. And as we've ramped up our increased awareness of Cortrophin Gel, they've sort of reintroduced ACTH into their suite of treatments that they use for patients -- of course, for appropriate patients in need. And that's why you're seeing the year-on-year monthly unit growth, right, for 10 consecutive months according to IQVIA.

We'll take our next question from Vamil Divan with Guggenheim Securities.

Nice results obviously here. So a couple of questions I just want to dig into a little bit more. One on the Cortrophin, and I appreciate you're not saying too much for competitive reasons. I'm just wondering if you could share any sort of just general feedback from providers as you're talking about some people may be returning to this market, patients returning and then also new providers potentially. Just the feedback you're getting in terms of how the product is performing relative to maybe prior experience with the competitor? And also, is there any sort of added cost we should assume on the -- behind the launch sort of for the rest of the year or in terms of -- it sounds like the sales [force is all] in place now, but anything else there or added sort of marketing, meaningful increases over what we saw in 1Q?

And then the second question was just more general. Again, getting back to the cash discussion. I'm just curious if you can talk a little bit more about sort of your comfort level on your leverage ratio as you think about investing behind Cortrophin but also potentially bringing in additional Rare Disease assets? What kind of level -- I know your debt run [from] $300 million, [about] $240 million or so of cash plus the accounts receivables. I'm just curious how much added leverage you'd be comfortable taking?

So let me answer your second question and then your first, and then I'll let Steve start on the last one around the leverage ratio. So we are not adding any costs. When we had spoken at last quarter's earnings call for Cortrophin SG&A, we had indicated that we expect 10% higher than previous year SG&A. And I think it's in our press release. So that -- we will maintain the SG&A spend at that. So no added costs. So that's the answer to that question.

And look, in terms of general feedback from prescribers, I think it's a few things. So first is that they comment on the -- on our sales force and our sales force is highly experienced, highly trained and they focused the discussions on patient need, right, and on the ACTH category. And I think that, that engagement is one that they speak very highly off, right? Because this is a Rare Disease product, right, and it's for identifying the appropriate patients in need. So I think that's the first thing they speak about.

I think the second, as I mentioned in my remarks that the central to our Cortrophin Gel launch has been our efforts around market access and improving the enrollment to fulfillment process. And I think they comment about that, and they've reduced sort of burden that they have there. I think third, equally important is they talk about the reduced cost of the health care system and the reduced cost of the patient and the favorability of that.

And of course -- again, I have to be careful about what I say here, but I mean underlying all of this is the impact to the patient, right, the patients that they're treating. And these are complex cases and patients dealing with complex indications and comorbidities and the impact that they're seeing on those patients is part of it. So I think those would be the points -- the feedback that we're getting from the HCPs.

And then your last question on leverage ratios. Obviously, Steve will jump in, which is, with the EBITDA of $33 million, that has a very favorable impact and also our guidance has a very favorable impact on our leverage ratio. And I'll let Steve comment on how we think about that going forward.

Sure. Yes, I think it's important because I think your question kind of leads together 2 aspects, right, the cash, the leverage and then also just kind of the [BV] [thought], right, as we look to build out the Rare Disease business. So I think it's important to note, right, as I answer this, that there's no black and white. There's no absolute. We're obviously going to retain flexibility, right, as we approach different business development opportunities and every opportunity, right, would have a different profile in terms of the asset that we're approaching, what is its cash flow profile.

So with those kind of caveats, I think, obviously, we're pleased with the cash position as of March 31 and the progress that we've made there. As I just answered with Elliot's question, we -- this is a strong platform for us to build that cash position as we look to future quarters, and we will always remain focused and balanced in terms of our leverage position.

For folks that have been following the company for some time, I think one of the hallmarks of ANI and how we've navigated the market throughout the years is to remain a bit conservative on leverage. And as we spoke about on these calls and with our constituents, right, in 2022, we were a bit forced, if you will, to go beyond our comfort, so in order to do what was right for the business and to stand up Rare Disease and to launch Cortrophin with an eye towards strength and with an eye towards doing the Cortrophin launch correctly right out of the gate.

And so we're very pleased that as we look forward at the current moment, we're delevering organically as projected and we're very pleased that, that will continue to occur here in 2023.

All of these factors, right, put us in a better position of strength to approach business development opportunities. And you may know, right, as you're going back through the prepared comments for today, I did cite the untapped credit facility of $40 million. That's the first time in a while, right? I wasn't citing that in our 2022 earnings calls because Nikhil and I would not be comfortable tapping into that given the leverage levels that you're at in 2022.

And so again, all these factors, we would expect looking forward, right, that, that credit facility may be another piece of the puzzle for us as we look to continue to grow the business.

We will take our next question from Brandon Folkes after.

Congratulations on the very strong results. Maybe firstly from me, just on the gross margin. This is very strong in the quarter. Can you just elaborate on why we're not expecting further gross margin expansion in your updated guidance, just given the increased contribution of Cortrophin through the rest of the year? And I would have expected Cortrophin to have better gross margins than the established brands product?

Along those lines, can you just talk about if there are any onetime price benefits in the quarter on the base business, especially due to some of the supply disruptions you mentioned?

And maybe I'll ask the second question because it may go hand-in-hand with that. Can you just help me further understand the guidance? It just seems if I take a 1Q base business run rate and I add the low end of your Cortrophin guidance, you're getting close to sort of $440 million in revenue. So can you just talk about either perhaps some of the one timers in 1Q headwinds in the base business for the rest of the year? Or is this just sort of conservatism given how early we are in the year.

Yes. So why don't I start, then Steve, you can jump in. So look, our guidance, implicating your question 1 and 3 on the evolution of gross margin and then the question on guidance -- is really the question on guidance. And our guidance is based on several factors, right, as you would appreciate. And this includes accelerated launch momentum that we're seeing with Cortrophin Gel where we've had a record number of new cases initiated in Q1 '23, but also a record number of new patient starts and new cases initiated in April of 2023, right, which is the month that finished 8 days ago. And -- so that's the first set of factors.

And then the second is that the impact of the trend that we're seeing across Generics and established brands of several favorable structural factors such as product-specific issues, manufacturing site-related issues arising from FDA audit outcomes, company-specific financial issues such as Chapter 11 and Chapter 7 situations and broader market-driven opportunity. And our guidance sort of calibrates the upside from this thing, right? And so that answers hopefully question 1 and 3.

And then to your question around price benefits, look again, for competitive sensitivity reasons, we'd like to give that question a pass. I think that it's -- the favorability is largely driven by volume, right? And I wouldn't want to add more specifics around the price. Steve, would you like to add anything?

I think you covered, Nikhil, the question and what we're prepared to speak to this morning.

We'll take our next question from Greg Fraser with Truist Securities.

Can you comment on how to think about the quarterly cadence of generic sales for the balance of the year? And then on the significant growth for our established brand and other revenue, was the growth driven primarily by established brands as opposed to the other segments of royalties and contract manufacturing? It looks like you're no longer breaking those out separately. So I just wanted to know if there's something chunky in there that drove the first quarter outperformance? And I'm not sure if I missed this, but did you comment on the time line or gave any updates on your 505(b)(2) programs? And if not, can you give us an update on those?

3 questions. So the first question is time line for 505(b)(2). We did not comment on it. And at this point, we're not sharing information on that. So we will come back when there's more to share on the 505(b)2 launches.

Your first question on the quarterly cadence for Generics. Look, I think the -- we've always talked about sustainable growth. And for Generics, it's really about ensuring that we continue with our strong R&D growth engine, right, continue delivering new launches, focusing on cost excellence, right, by continuously reducing the cost and therefore, being able to continue to supply and stay competitive and then third to supply security, right?

And with all of the 3 -- sort of 3 strategies with the new product launch really at the heart and center of it, we believe that the erosion that we see in our business from Generics will be overcome by the growth that we'll get from new launches, from supply security and from cost excellence, right? And so we'll be able to grow the Generics business as we keep moving forward. So that tells you a little bit about the quarterly cadence.

And then on the question regarding where is the upside from within the established brands, royalties and other segments, I think, while it's mixed, a good part of it is from the established brands segment.

And we'll go next to Oren Livnat with H.C. Wainwright.

I have a few. Just to, I guess, build on the prior questions about going forward visibility. You've had outperformance from every line. But if we start with Generics first, again, implied in your guidance is some conservatism looking forward. Just can you talk about if you expect -- whatever disruptions happened, supply, bankruptcy, et cetera, does your guidance assume conservatively some normalization in the competitive landscape going forward? And then on the brand -- legacy brand business, which is obviously a high-margin contributor. Going forward, is that still a declining revenue line? Or do we think that has eroded in volume, offset by some pricing benefits? Is that a stable business going forward? And I have a couple of follow-ups.

So I think your first question was on the on the trend. So look, the impact of the trend, right, it has several favorable factors -- structural factors that I spoke about a couple of times, right, product specific issues, manufacturing site-related issues from FDA audit outcomes, company-specific financial issues. This is Chapter 11 and Chapter 7 and broader market-driven opportunities. And so what you see in our guidance is a calibration of the upside from [these things] and understanding of the mix of these issues, how that will persist. So that's the answer to that question on continuity.

And then on established brands, as we've spoken about before, there's a number of steps that we're taking to -- in our established brands business, right? So we have innovative go-to-market strategies for the bulk of our established brands. For our derm-specific brands that we had acquired from Sandoz couple of years ago, we've launched a partnership that now sort of will flow with another company to do co-promotions. So that's in full flow.

And obviously, as we talked about, right, the operational excellence to ensure that as customers need these products on a timely basis being ensured, being able to have a robust local supply chain that can provide these products on a timely basis to customers.

And follow-ups there actually, before I get to Cortrophin. In the past, you've talked about product concentration and no product -- single product exceeding x percent of total revenue. Can you update us on, I guess, the largest single contributor size percentage-wise in Q1? Then I have Cortrophin question.

I think it's Cortrophin by a long distance, right?

I mean aside from Cortrophin.

Nikhil, I'd say we haven't highlighted those products in the past. And I'd say we're still very pleased with the product diversification in the portfolio.

And moving on to Cortrophin, if I may. I know you're not giving -- I appreciate you're not giving us more granularity on specific patient adds and doctor adds, but I guess can you just characterize as that launch has accelerated in Q1, does the pace of new initiations of actual therapy, as you pull through insurance adjudication, et cetera, has that outpaced or is that higher or lower, I guess, than the new patient referrals or prescribing ads wherever they're coming from? I'm just trying to think about whether you sort of had to catch up this quarter and you pulled through existing prior demand? Or if it's sort of steady state on that front in terms of conversion, and it's really just organic end-user demand growth?

Yes. Look, our -- the growth that we're seeing, right, it's not as simple as saying what's the pace of new patient adds, right? Because there's a number of other factors that go from new cases initiated to actually revenue-generating patients, right? It's the mix of patients, it's the number of vials per patient, it's the number of patients that are revenue generating and the time to therapy. So there's a number of different factors. I would say that is straightforward, right? You look at the -- what we've done in Q1 and what we're reiterating our guidance for the rest of the year, that we have high confidence in that, that mix will continue.

And I think one very important point is that our intention is to continue giving investors the best available information. And while we're not giving the specific number, we're making it clear that, look, even in the month of April, we had a record number of new patient starts and new cases initiated. And you don't have that unless you have accelerating launch momentum. That's as simple as that.

Yes. You actually kind of segue into my next question, mentioning the sort of vials per patient or I guess you can call it, units per patient. Can you just comment on not pricing per se, but are you seeing a material increase in Q1 looking forward in the sort of value per patient in terms of the kinds of indications that are getting prescribed and pulled through. We obviously -- [there's] a big range and some indications have longer or higher dosing than others?

Yes. No, there's no -- we're not necessarily seeing a difference in that dynamic. And what we're seeing is not something that I'm prepared to [perform] for competitive reasons.

And just lastly -- I apologize for all the questions. But on the Rare Disease space, you sound pretty explicit that you're quite interested in looking at M&A. And I'm just curious if you could talk about the kinds of things you're looking at? Are we thinking about on-market products maybe that are underperforming or new launch situations? And are you more inclined towards a partnership, co-promoting or helping commercialize the product for a company that's not really set up to do so as well as you, or product and/or company acquisitions that might involve more integration activities?

Yes. So look, we're looking for assets that can leverage the strong Rare Disease infrastructure that we have built. And when I say that infrastructure, what do I mean, you remember I [was] -- when the earlier question was asked about HCP feedback, the first thing I highlighted was the highly experienced and expert sales force that we have. So -- and we go into 3 different -- the sales force spans 3 different indications: neurology, nephrology and rheumatology. So the first and obvious one would be to pick an asset that is [key] of these 3.

And then obviously, we just have pulmonology, although it's a modest dedicated team. And so there is -- an asset that sort of goes into one of these [all], right? So that's one.

And I think the second part of it is just one that leverages our Rare Disease infrastructure market access, patient support, specialty pharmacy distribution, right, compliance, medical affairs, all of that. And so [basic] assets that can leverage that, too. So we're looking at actively exploring both sets of opportunities. I think that -- from your question around what kind of assets, look, we're evaluating all and -- in [point] of time what's best for ANI, right? And so there are no -- in terms of sort of -- there's nothing that we're blocking [from] that perspective.

And there are no further questions at this time. I will turn the call back over to Nikhil Lalwani for closing remarks.

Yes. Thank you, everyone, for joining our call this morning. Thank you to the folks who asked the questions. We appreciate it. And look, we'd just like to reiterate that ANI is well positioned to continue delivering sustainable growth and serving patients in need, and we look forward to updating you on our progress. We appreciate your time and interest in ANI and thank you.

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