ANI Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Business context
ANI develops, manufactures, and markets generic, established-brand, and rare-disease pharmaceuticals, as well as contract manufacturing and development services. The company acquired Novitium in November 2021. Purified Cortrophin Gel, its rare-disease product, launched in the U.S. in January 2022.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $73.9m | $48.6m | $138.3m | $103.1m |
| Operating loss | $(12.9)m | $(15.6)m | $(32.1)m | $(12.5)m |
| Net loss | $(14.9)m | $(14.1)m | $(35.1)m | $(14.0)m |
| Loss per share, diluted | $(0.94) | $(1.17) | $(2.21) | $(1.16) |
| Operating cash flow | Six-month period: $(30.4)m | Prior-year six-month period: $20.9m provided |
Q2 revenue grew 51.9%; six-month revenue grew 34.1%. Generic sales and Cortrophin Gel launch revenue drove growth, partly offset by lower established-brand sales and the absence of the prior-year Kite/Yescarta royalty. Cortrophin Gel contributed $10.2m in Q2 and $11.5m year to date. Novitium contributed $19.9m and $39.1m of revenue, respectively.
Q2 cost of sales excluding depreciation and amortization was 47.8% of revenue, versus 45.9% a year earlier; six-month cost was 50.3%, versus 41.0%. Management attributed the increase to product mix, lower average selling prices, profit-sharing products, and the prior-year period’s $11.2m royalty revenue, which had no associated cost of goods sold. Selling, general and administrative expense rose to $32.0m in Q2, primarily reflecting $12.4m of additional sales and marketing expense tied to Cortrophin Gel.
Segment results: Q2 Generics, Established Brands, and Other revenue was $63.7m with EBITDA of $15.5m; Rare Disease revenue was $10.2m with EBITDA loss of $6.7m. For six months, the respective segment EBITDA figures were $30.0m and $(17.1)m.
Liquidity, debt, and cash flow
At June 30, cash and cash equivalents were $63.4m, current assets $322.4m, and current liabilities $96.3m. The company reported $298.5m principal outstanding on its term loan, with a 7.06% interest rate, and $40.0m available under its undrawn revolving facility. The term loan matures in November 2027; substantially all company assets and certain domestic subsidiary assets secure the credit facility.
Six-month operating cash use of $30.4m reflected net loss and working-capital investment, including increases of $21.9m in receivables and $10.9m in inventory. Investing cash use was $2.8m and financing cash use was $3.7m. Cash, cash equivalents, and restricted cash totaled $68.4m at period-end. Management stated available resources should meet working-capital needs and debt obligations for at least 12 months.
Material changes, outlook, and risks
- Oakville restructuring: ANI plans to cease operations at its Oakville, Ontario facility by Q1 2023 and transition most production to U.S. sites. Q2 restructuring expense was $2.6m. The company expected approximately $1.4m of additional employee-related charges and $3.1m–$3.6m of accelerated depreciation over the following nine months. The $8.0m carrying value of the site’s land and building was classified as held for sale; a sale is not assured.
- Growth investment and costs: Cortrophin Gel commercialization, Novitium integration, and acquired intangible-asset amortization increased expenses. Q2 SG&A was up 69.8% year over year; six-month SG&A was up 66.9%.
- Debt and rate exposure: Higher debt and borrowing costs increased six-month interest expense to $13.3m from $5.0m. An interest-rate swap hedged part of the term loan; the company remained exposed to rate changes on unhedged debt.
- Supply-chain and customer concentration: ANI reported pandemic-related supply disruptions and long material lead times. One supplier accounted for 17% of six-month inventory purchases; three customers represented 83% of receivables at quarter-end.
- Legal and regulatory matters: Bystolic antitrust motions to dismiss were pending. ANI disclosed an ongoing federal investigation into the generic pharmaceutical industry, with no assured timing or outcome. Certain products, including EEMT and Opium Tincture, are marketed without approved NDAs or ANDAs; related sales were $2.9m in Q2 and $6.9m for six months.
- Other: On July 21, 2022, after quarter-end, ANI acquired four ANDAs for $8.0m plus an immaterial inventory amount, funded with cash on hand. The filing gives no quantified revenue or earnings guidance.
Key investor verification points
- Track Cortrophin Gel prescription growth, revenue, margins, and launch-related spending against the company’s commercialization objectives.
- Assess whether operating cash use and receivables and inventory growth moderate as sales expand.
- Verify Oakville transition execution, expected restructuring charges, and whether the site is sold.
- Monitor debt service, interest-rate exposure, covenant compliance, and use of the $40.0m revolver capacity.
- Review generic pricing and product mix, customer and supplier concentration, and developments in the disclosed litigation and investigation.