ANI Pharmaceuticals, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Financial statements are unaudited. On June 19, BioSante acquired ANIP in an all-stock merger and was renamed ANI Pharmaceuticals. The transaction was accounted for as a reverse acquisition, so ANIP’s historical results are presented for pre-merger periods; BioSante’s results are included only after the merger. The filing says BioSante generated no revenue or expense between the merger date and June 30.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenue | $6.15 million | $5.19 million | $11.71 million | $10.01 million |
| Operating income (loss), continuing operations | $(3.77) million | $0.59 million | $(3.37) million | $1.18 million |
| Net income (loss) | $(4.58) million | $0.04 million | $(4.32) million | $0.03 million |
| Operating cash flow | Not separately provided | Not separately provided | $(0.99) million | $0.56 million |
- Revenue and mix: Q2 revenue grew 18.6%. Generic product revenue rose 9.5% and branded product revenue rose 103.5%, while contract manufacturing revenue declined 7.6%. Six-month revenue grew 17.0%; generic and branded sales increased 20.5% and 128.1%, respectively, while contract manufacturing declined 14.8%.
- Margins: Cost of sales excluding depreciation and amortization was 34.1% of revenue in Q2 versus 40.9% a year earlier; six-month cost was 37.9% versus 39.7%. The filing attributes the improvement to product mix and lower raw-material costs. These figures imply gross margins before depreciation and amortization of 65.9% and 59.1% for Q2, and 62.1% and 60.3% for the six-month periods.
- Profitability and unusual expenses: Salaries and benefits rose to $5.71 million in Q2, mainly due to $4.5 million of non-cash executive transaction bonuses. Merger-related costs totaled $6.59 million, of which $5.66 million was expensed in the first six months of 2013. Other expense included $390,000 of merger-related monitoring and advisory fees; that payment obligation ended when the merger closed. Interest expense fell year over year, though repayment of the credit facility incurred an early termination fee and accelerated loan-cost amortization.
- Per-share figures: Reported basic and diluted loss per share was $6.02 for Q2 and $15.98 for the six months. The filing retrospectively adjusted share counts for a one-for-six reverse stock split approved in July. The merger and substantial share-count changes also make comparison with prior-period per-share figures difficult.
Financial position and liquidity
- At June 30, cash and cash equivalents were $12.59 million, with another $2.26 million of restricted cash acquired in the merger and designated for certain severance liabilities. Total current assets were $24.12 million and current liabilities were $6.16 million.
- Accounts receivable, net, was $6.43 million; inventory was $2.58 million. Total assets were $41.66 million, versus $13.75 million at December 31, 2012. The increase reflects the merger, including $10.9 million of acquired Teva license intangible assets and $1.84 million of goodwill.
- The $4.07 million revolving credit balance outstanding at year-end was repaid in June; no line-of-credit borrowings remained at quarter-end. Redeemable preferred stock totaling $48.75 million at year-end was eliminated in connection with the merger. Stockholders’ equity was $35.49 million, compared with a $42.71 million deficit at year-end.
- For the six months, operating activities used $0.99 million of cash; investing activities provided $18.07 million, primarily from $18.20 million of cash acquired in the merger; financing activities used $4.50 million, mainly for credit-line repayment. Capital expenditures were $0.13 million.
- Management said working capital and anticipated operating revenue should fund requirements for at least 12 months. The notes state the going-concern basis is supported by management’s operating plan through June 30, 2014. The company nevertheless reported an accumulated deficit of $53.10 million and a history of losses and negative operating cash flow.
Management commentary, outlook, and risks
- Management attributed product growth to market-share gains in Opium Tincture and fluvoxamine, and higher unit sales of Reglan tablets and, to a lesser extent, Cortenema. Lower contract-manufacturing orders reduced that revenue stream. No specific revenue, earnings, or product-launch guidance is provided.
- Products marketed without FDA-approved NDAs or ANDAs generated $1.77 million of Q2 revenue and $3.29 million for the first six months. The FDA had discussed continued manufacture and distribution of Opium Tincture with the company in October 2012; the company reported no further FDA response to its November 2012 letter. If sales must stop or approval is required, revenue could be materially affected and costs could rise. A contract customer’s unapproved products also contribute manufacturing and royalty revenue.
- Revenue and receivables are concentrated: the three largest customers represented 41%, 21%, and 7% of Q2 revenue; for the six-month period they represented 25%, 15%, and 14%. Receivables from those customers totaled $5.01 million at quarter-end. Supplier concentration and dependence on qualified, sometimes single-source active ingredient suppliers create supply risk. Opium Tincture also depends on annual DEA quota approval.
- Contingencies include metoclopramide product-liability litigation involving 85 complaints and 2,934 plaintiffs; insurance excludes Reglan/metoclopramide claims. The company could not predict the outcome or loss range and had accrued no amount. A BioSante securities class action was dismissed without prejudice on July 1; after quarter-end, plaintiffs indicated they would seek dismissal with prejudice but might appeal. Derivative lawsuits remained pending, with outcomes uncertain.
- Management identified ongoing integration of BioSante and ANIP systems and controls during 2013. Disclosure controls were considered effective at quarter-end; no material change in internal control over financial reporting was reported. Principal risks include continued losses, financing needs, product-development and regulatory uncertainty, competition and price erosion, customer concentration, supply interruption, and litigation.
Most important facts for investors to verify
- Whether the merger-related charges, especially the $4.5 million non-cash bonuses, are fully understood and separated from recurring operating costs.
- Whether cash generation improves after the merger and whether management’s stated 12-month liquidity outlook remains supportable.
- The FDA status and revenue exposure of Opium Tincture and other unapproved products, and the status of the required DEA quota.
- Whether customer concentration, contract-manufacturing order declines, and single-source supplier dependence change materially.
- Developments in metoclopramide and shareholder litigation, including any appeals or potential financial exposure.
- The final merger purchase-price allocation and the effect of the reverse acquisition and reverse stock split on comparisons and per-share metrics.