ANI Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results are compared with the corresponding 2020 periods. ANI develops, manufactures, and markets branded and generic pharmaceuticals, with a focus on niche and complex products, and operates manufacturing facilities in the U.S. and Canada. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $52.1 | $53.0 | $155.2 | $151.2 |
| Operating income (loss) | $(3.6) | $2.8 | $(16.1) | $(16.3) |
| Net income (loss) | $(4.4) | $0.4 | $(18.5) | $(18.9) |
| Diluted EPS | $(0.37) | $0.04 | $(1.53) | $(1.58) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $15.5 | $21.0 |
| Investing cash flow | Not provided for quarter | Not provided for quarter | $(23.3) | $(66.2) |
| Financing cash flow | Not provided for quarter | Not provided for quarter | $15.2 | $0.8 |
- Q3 revenue declined 1.7%. Generic product revenue fell 6.8% to $35.1 million, partly offset by branded revenue growth of 15.3% to $14.3 million. Contract manufacturing revenue rose 10.7% to $2.4 million.
- Q3 cost of sales, excluding depreciation and amortization, increased 21.3% to $24.4 million. Reported cost of sales was 46.9% of revenue versus 38.0% a year earlier; excluding $2.2 million of acquired-inventory fair-value expense, the company reported a 42.6% ratio versus 38.0%.
- For the nine months, revenue rose 2.6%, but included $11.2 million of final Yescarta-related royalty revenue recognized in Q1. Generic revenue declined 6.1%; branded revenue increased 2.1%.
- Nine-month operating costs included an $8.4 million legal settlement. Cortrophin Gel pre-launch charges were $0.8 million, compared with $8.3 million in the prior-year period. Interest expense was $7.5 million, up from $6.9 million.
Balance sheet, debt, and liquidity
- At September 30, 2021, cash and cash equivalents were $15.3 million; restricted cash was $5.0 million. Current assets were $191.4 million and current liabilities were $84.9 million.
- Reported debt, net of financing costs, was $202.0 million: $15.9 million current and $186.1 million non-current. The filing also reports $202.9 million of outstanding borrowings before financing-cost adjustments. The existing credit facility matures in December 2023; $43.5 million remained available under its revolver.
- Operating cash flow of $15.5 million was below $21.0 million in the prior-year period, reflecting working-capital movements, the $8.4 million settlement payment, and higher income-tax payments. Investing outflows were primarily the $20.7 million Sandoz asset acquisition and $2.2 million of capital expenditures.
- Management stated that working capital, expected operating cash flows, and revolver availability were expected to meet working-capital needs and debt obligations for at least the next 12 months, excluding the financing plan for the pending acquisition.
Material changes, outlook, and risks
- Novitium acquisition: The announced transaction consideration included approximately $89.5 million in cash, 2,466,667 ANI shares, and up to $46.5 million in contingent earn-outs. Planned financing included a $340 million secured facility and a $25 million preferred-stock investment from Ampersand, an affiliate related to the Board Chair. FTC approval remained pending at filing; ANI had agreed to divest rights to two products as a condition and expected closing in November 2021. The new facility carried $2.4 million of ticking-fee expense in Q3.
- Cortrophin Gel: The FDA approved the supplemental application on October 29, 2021, after quarter-end. ANI planned a full-scale launch in Q1 2022 and anticipated materially higher commercialization spending in Q4 2021 and 2022. The company identified launch execution, manufacturing, payer access, market acceptance, and competition as significant uncertainties.
- Other developments: ANI launched generic Nebivolol in September and acquired three NDAs and one ANDA from Sandoz for $20.7 million in April. The final Yescarta-related royalty was received in May; ANI did not expect further royalty income under that agreement.
- COVID-19 and operations: Generic prescription volumes recovered sequentially in Q2 and Q3, but remained affected by the pandemic and supply-chain disruptions. ANI reported no significant manufacturing impact and continued to monitor uncertainty around future effects.
- Legal and regulatory exposure: The $8.4 million Arbor settlement was paid in August with no admission of wrongdoing. Bystolic antitrust and vancomycin and Treprostinil patent litigation remained pending; outcomes and potential losses were not estimable in the filing. ANI also disclosed an ongoing federal generic-industry investigation. Certain marketed products and a contract-manufactured product group lacked approved NDAs, creating potential regulatory and revenue risk.
- Concentration and supply risks: Three customers accounted for 85% of accounts receivable. ANI noted dependence on single-source API suppliers for some products and exposure to pricing competition, FDA approvals, and product acceptance.
Most important facts for investors to verify
- Whether the Novitium acquisition closed on the expected terms and how the new debt, equity issuance, earn-outs, and FTC-required divestitures affect ANI.
- Whether Cortrophin Gel launched as planned, and the resulting sales, gross margin, commercialization costs, and payer coverage.
- Whether generic-product revenue and margins recover, given Q3 generic declines, pricing pressure, and customer concentration.
- How much cash generation is recurring, excluding the one-time $11.2 million royalty, and whether liquidity remains adequate after acquisition financing and debt service.
- Developments in pending litigation and the federal investigation, plus any FDA or supply-chain issues affecting products or manufacturing.