ANI PHARMACEUTICALS INC quarterly report, Q3 FY2023

ANI Pharmaceuticals, Inc. — Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. ANI develops, manufactures and markets generic, established-brand and rare-disease prescription pharmaceuticals; Cortrophin Gel is its current rare-disease product.

Financial performance and position

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Net revenue	$131.8 million	$83.8 million	$355.2 million	$222.2 million
Operating income (loss)	$17.9 million	$(5.0) million	$40.2 million	$(37.1) million
Net income (loss)	$9.9 million	$(8.6) million	$17.6 million	$(43.7) million
Diluted EPS	$0.45	$(0.55)	$0.83	$(2.76)
Operating margin	13.6%	(5.9)%	11.3%	(16.8)%

Revenue mix, Q3: Generics $70.6 million; established brands, royalties and services $31.5 million; rare disease $29.7 million. Rare-disease revenue was entirely Cortrophin Gel.
Margins: Cost of sales, excluding depreciation and amortization, was 36.5% of revenue in Q3 and 36.1% year to date, versus 39.2% and 46.1% in the comparable periods. The corresponding gross margins on this basis were 63.5% and 63.9%, versus 60.8% and 53.9%.
Cash flow, nine months: Operating cash flow was $74.2 million, compared with cash used of $26.8 million a year earlier. Investing used $13.7 million; financing provided $79.4 million, principally reflecting the May stock offering.
Liquidity: Cash and cash equivalents were $193.1 million at September 30, up from $48.2 million at year-end 2022. Current assets were $497.2 million and current liabilities $134.4 million. ANI reported $40.0 million available under its undrawn revolving facility, subject to conditions.
Debt: Term-loan principal was $294.8 million, with a 11.45% interest rate at quarter-end; debt carrying value, net of financing costs, was approximately $285.9 million. The term loan matures in November 2027 and is secured by substantially all company and certain subsidiary assets. ANI transitioned the facility and interest-rate swap from LIBOR to SOFR in 2023.
Equity and other items: The May 2023 public offering of 2.18 million shares generated $80.6 million net proceeds. Series A preferred stock carries cumulative dividends at 6.5% annually. Contingent consideration was $34.5 million at quarter-end.

Changes versus the prior comparable periods

Q3 revenue rose 57.3%; nine-month revenue increased 59.9%. Management attributed growth to higher generic volumes and launches, increased established-brand and service revenue, and Cortrophin Gel’s second launch year.
Rare-disease revenue grew 135.9% in Q3 and 192.0% year to date. Generics, established brands and other revenue increased 43.4% in Q3 and 43.8% year to date.
Profitability improved substantially, with the company moving from operating and net losses in 2022 to operating and net income in 2023. Nine-month operating cash flow also improved by $101.0 million.
SG&A rose 39.6% in Q3 and 29.0% year to date, reflecting higher employment-related costs, legal expenses and business-support activity. R&D increased 45.2% in Q3 and 42.8% year to date, including costs for a 505(b)(2) filing and other development work.
Interest expense was lower in Q3 but higher year to date, as higher borrowing rates and finance-fee amortization outweighed interest-rate-swap and cash interest income effects.

Outlook, commentary and risks

Management said that changes in market conditions for certain products are expected to make Q4 2023 demand and revenue for certain generic and established-brand products significantly lower than the rate achieved during the first nine months. The filing does not provide a quantified revenue or earnings forecast.
ANI plans to continue investing in Cortrophin Gel and its rare-disease platform, generic development and commercialization, and potential acquisitions or strategic transactions. The company announced FDA approval and commercial availability of a 1-mL Cortrophin Gel vial on October 2, 2023, for adjunctive treatment of certain acute gouty arthritis flares.
The Oakville, Ontario facility ceased operations on March 31, 2023, and products were transitioned to U.S. facilities. After quarter-end, ANI agreed to sell the property for C$17.85 million (approximately US$13 million), subject to adjustments and due-diligence and financing conditions; closing is expected in Q1 2024.
Three products—esterified estrogen with methyltestosterone, opium tincture and thyroid tablets—are marketed without approved NDAs or ANDAs. Revenue from these products was $9.2 million in Q3 and $16.4 million year to date. FDA action could require approval applications or withdrawal from the market.
Customer concentration is significant: four customers each accounted for at least 10% of Q3 2023 revenue, and receivables from those customers represented 85% of net accounts receivable. The largest customer contributed 35% of Q3 revenue.
Risks include generic price competition, dependence on single-source APIs, supply disruptions, regulatory and approval risks, healthcare fraud-and-abuse and privacy compliance, and litigation. Litigation includes an appeal in the Bystolic antitrust matter, patent disputes, ranitidine-related claims and a newly filed patent action; the filing says outcomes and possible losses cannot be predicted or estimated for certain matters. Novitium was named in more than 700 ranitidine MDL short-form complaints.
Management concluded disclosure controls and procedures were ineffective at September 30, 2023 because remediation of previously identified material weaknesses in internal control was ongoing. Remediation included hiring accounting leadership, adding finance resources and implementing an ERP system and consolidated accounts-payable controls.
ANI stated its available resources should cover working-capital needs and debt obligations for at least the next 12 months. Actual results remain subject to the risks and uncertainties described in the filing.

Important facts for investors to verify

Whether the expected Q4 slowdown in certain generic and established-brand products affects revenue, margins or cash generation more than anticipated.
Cortrophin Gel’s continuing growth, including commercial uptake of the newly approved 1-mL vial and the associated costs of commercialization.
Execution and closing conditions for the Oakville sale, including the expected proceeds and timing.
Ability to service the high-rate, secured term debt, covenant compliance and the effect of interest rates despite the SOFR transition and hedge.
Progress in remediating the disclosed material weaknesses and the timing of management’s conclusion that controls are effective.
Developments in significant litigation and regulatory matters, including any FDA action concerning unapproved products and any material change in potential losses.
Customer concentration, receivable collection, API sourcing and the durability of revenue gains attributed to temporary competitor supply disruptions.