ANI Pharmaceuticals, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. ANI develops, manufactures and markets branded and generic specialty pharmaceuticals, with a focus on niche and complex products.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net revenue | $76.3 million | $56.0 million |
| Operating income / margin | $32.7 million / 42.8% | $20.0 million / 35.7% |
| Net income | $15.4 million | $28.7 million |
| Diluted earnings per share | $1.32 | $2.59 |
| Cash from operating activities | $17.3 million | $22.0 million |
| Cash and cash equivalents at year-end | $154.7 million | $169.0 million |
| Convertible notes, principal | $143.8 million | $143.8 million |
- Revenue increased 36.4%, led by generic product sales, up 53.9% to $55.2 million. Contract manufacturing fell 17.7% to $4.9 million; branded product revenue was essentially flat at $11.0 million.
- Cost of sales, excluding depreciation and amortization, was 16.6% of revenue versus 20.5% in 2014, implying a corresponding gross margin of 83.4% versus 79.5%. Management attributed the improvement mainly to pricing and product mix.
- Net income declined despite higher operating income, chiefly because 2015 included $11.0 million of interest expense and $6.4 million of income tax expense. 2014 net income included a $16.7 million reversal of a deferred-tax valuation allowance, contributing to a $9.4 million tax benefit that year.
- Operating cash flow was $17.3 million; investing used $32.7 million, mainly for product-right acquisitions and capital expenditures. Cash declined $14.4 million during the year.
- Year-end current assets were $192.6 million and current liabilities $11.8 million. Current assets included $154.7 million of cash; the filing reports no revolving credit balance. Notes had $143.8 million principal and $113.4 million net carrying value.
Fourth-quarter results and changes
Fourth-quarter 2015 revenue was $18.0 million, versus $21.0 million in fourth-quarter 2014, a decline of about 14%. Operating income was $6.3 million versus $10.8 million, and net income was $2.9 million versus $21.0 million. The prior-year quarter benefited from the $16.7 million deferred-tax valuation-allowance reversal; therefore, the net-income comparison is not representative of operating performance alone.
For full-year 2015, generic revenue growth reflected higher EEMT prices and sales from recent launches, including Methazolamide, Etodolac, Propafenone and Vancomycin. ANI said additional competitors entered the EEMT market toward year-end, reducing market share and revenue pressure. EEMT represented 51% of 2015 net sales, up from 42%; Opium Tincture represented 7%, down from 11%.
Outlook, material developments and risks
- Management expected 2016 revenue growth from recent launches and anticipated launches, but provided no numerical revenue or earnings guidance in the supplied filing text. It expected cost of sales, R&D, SG&A and amortization to rise in 2016.
- In January 2016, ANI completed the $75.0 million acquisition of Corticotropin and Corticotropin-Zinc NDAs, funded with cash on hand, plus a percentage of future net sales. Commercialization depends on supplemental FDA approval and securing manufacturing and commercial capabilities. ANI also agreed to pay $10.0 million for U.S. distribution rights to three products and an early-stage injectable project, and repurchased 65,000 shares for $2.5 million.
- Two products marketed without approved NDAs or ANDAs—EEMT and Opium Tincture—accounted for 58% of 2015 revenue. The FDA could require approval or withdrawal. ANI also depends entirely on imported API for EEMT and on annual DEA quotas for controlled-substance ingredients.
- Sales and receivables are concentrated: three wholesalers generated 64% of revenue, and the three largest customers represented approximately 73% of net receivables. A limited number of API suppliers, including single-source qualifications for products, creates supply and production risk.
- Other disclosed risks include generic competition and price erosion, Medicaid rebates and estimates, possible product-quality or regulatory action, and uncertain metoclopramide litigation. A Louisiana Medicaid lawsuit concerning products from a former operation seeks unspecified damages and penalties.
- The filing states that management expects available resources and forecast operating revenue to cover working-capital needs for at least 12 months. This assessment preceded the January 2016 cash-funded acquisitions. The independent auditor issued unqualified opinions on the financial statements and internal controls; management and auditor found internal control over financial reporting effective at year-end.
Investor verification priorities
- Track EEMT competition, pricing, market share and imported API availability, given its 51% share of 2015 revenue and unapproved status.
- Confirm post-acquisition cash, operating cash generation and the capacity to service the 3.0% convertible notes due 2019 after the $75 million and $10 million January 2016 transactions.
- Assess conversion of the acquired and partnered product pipeline into FDA approvals, launches and profitable sales, including commercialization requirements for Corticotropin products.
- Monitor customer and supplier concentration, Medicaid rebate accruals, returns and chargebacks, and any updates to disclosed litigation or regulatory matters.
- Separate recurring earnings from the 2014 tax benefit and assess the effect of higher interest, amortization and expected 2016 operating costs.