ANI Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; amounts below are in U.S. dollars. ANI develops, manufactures, and markets branded and generic specialty pharmaceuticals, with a focus on niche and complex products.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $53.0 million | $51.3 million | $151.2 million | $158.6 million |
| Operating income (loss) | $2.8 million | $7.3 million | $(16.3) million | $21.0 million |
| Net income (loss) | $0.4 million | $3.9 million | $(18.9) million | $10.9 million |
| Diluted earnings (loss) per share | $0.04 | $0.32 | $(1.58) | $0.89 |
| Operating cash flow | Not separately stated | Not separately stated | $21.0 million | $40.8 million |
Margins: Cost of sales, excluding depreciation and amortization, was 38.0% of revenue in Q3 versus 29.2% a year earlier; for the nine-month periods it was 41.4% versus 28.6%. Operating margin was 5.3% versus 14.2% in Q3 and negative 10.8% versus 13.3% year to date. The filing attributes the cost ratio increase to product mix, profit-sharing products, and, year to date, inventory charges and acquired inventory costs.
- Q3 revenue mix: Generic product sales rose 18.8% to $37.7 million, while branded sales fell 25.3% to $12.4 million. Contract manufacturing declined 9.4% to $2.2 million; royalty and other revenue increased to $0.7 million. Overall revenue grew 3.2%.
- Nine-month revenue mix: Generic sales increased 9.2% to $108.6 million, but branded sales decreased 33.3% to $32.2 million and contract manufacturing decreased 17.3% to $7.0 million. Royalty and other revenue rose to $3.4 million. Overall revenue fell 4.6%.
- Q3 R&D expense decreased 41.0% to $2.9 million; SG&A increased 9.5% to $15.7 million; and depreciation and amortization increased 19.9% to $11.4 million. Nine-month SG&A rose 21.0% to $50.6 million, including $6.5 million of former CEO termination-related costs.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $17.9 million, down from $62.3 million at December 31, 2019. Restricted cash was $5.0 million.
- For the first nine months, operating cash flow was $21.0 million; investing used $66.2 million, principally for acquisitions and $4.0 million of capital spending; financing provided $0.8 million. Cash and restricted cash together declined $44.5 million.
- Current assets were $165.8 million and current liabilities $75.9 million. Net debt on the balance sheet was approximately $187.9 million, including current and non-current debt; gross Term Loan, delayed-draw term loan, and revolver borrowings totaled approximately $189.3 million. The revolver had $67.5 million available.
- Management said cash, expected operating receipts, working capital, and available revolver capacity were expected to meet working-capital and debt needs for at least 12 months. The credit facility matures in December 2023 and includes leverage and fixed-charge-coverage covenants.
Changes, outlook, and material matters
- ANI completed the Amerigen U.S. generic-product portfolio acquisition in January 2020 for $56.8 million, with up to $25.0 million of contingent payments over four years. It also acquired an ANDA and inventory in July for $4.3 million, plus transaction costs.
- COVID-19 reduced prescription volumes and revenue during the first nine months, particularly in Q2. Market prescription volume improved in Q3 but remained below pre-pandemic levels. ANI reported minor supply-chain disruptions, but no significant manufacturing impact; future effects remain uncertain.
- The FDA issued a Refusal to File for the Cortrophin Gel supplemental application in April. ANI was addressing the filing deficiencies and anticipated resubmission no later than Q1 2021. Management expected 2020 Cortrophin pre-launch expense of approximately $11–15 million; $8.3 million was recorded in the first nine months.
- New CEO Nikhil Lalwani began employment on September 8, 2020, after former CEO Arthur Przybyl departed in May. ANI launched several generic products in 2020, including mexiletine, omega-3 acid ethyl esters, polyethylene glycol, and paliperidone.
- Material risks include FDA action concerning two marketed products without approved NDAs/ANDAs, which generated $12.4 million of nine-month revenue; ongoing litigation, including ranitidine-related matters and an Arbor Pharmaceuticals suit; and disputes that could affect ANI’s Yescarta-related royalty receipts. Outcomes and potential losses are not clearly quantifiable from the filing.
- Revenue and receivables are concentrated: three customers represented 74% of Q3 revenue and 81% of receivables at September 30. The company also relies on single-source API suppliers for many products. No formal full-year revenue or earnings guidance is provided.
Key facts for investors to verify
- Whether Cortrophin’s sNDA is resubmitted on the stated timeline, receives FDA acceptance and approval, and requires additional pre-launch spending.
- Whether sales volumes recover from COVID-related weakness and whether generic growth can offset continued branded-product declines and margin pressure.
- Cash generation, acquisition-related contingent payments, debt repayment and covenant compliance, particularly given the substantial year-to-date cash decline.
- Developments in litigation, unapproved-product regulatory exposure, and the royalty disputes and tax withholding issue.
- The effects of customer concentration, supplier dependence, inventory reserves, and estimates for rebates, chargebacks, and product returns.