ANI Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; comparisons are with Q1 2021 unless otherwise noted.
Business context
ANI develops, manufactures, and markets generic, established-brand, and rare-disease pharmaceuticals, and provides contract manufacturing and development services. The quarter included Novitium, acquired in November 2021. ANI launched Purified Cortrophin Gel commercially in the U.S. on January 24, 2022. Beginning in Q1, management reported two operating segments: Generics, Established Brands, and Other; and Rare Disease.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $64.5 million | $54.5 million |
| Operating income (loss) | ($19.2 million) | $3.0 million |
| Net income (loss) | ($20.1 million) | $0.1 million |
| EPS, basic and diluted | ($1.27) | $0.01 |
| Cash from operating activities | ($18.9 million) | $20.7 million |
- Revenue increased 18.3%. Generic product sales rose 48.9% to $49.1 million, including $15.7 million from Novitium products; established-brand sales rose 12.4% to $8.5 million. Cortrophin Gel contributed $1.3 million in its initial commercial quarter.
- Royalty and other revenue declined $8.7 million to $2.7 million. Q1 2021 included a one-time $11.2 million final royalty related to the Kite/Yescarta license; ANI does not expect further royalties under that agreement.
- Cost of sales, excluding depreciation and amortization, rose 71.5% to $34.3 million, faster than revenue. Reported cost of sales was 53.2% of revenue versus 36.7%; the prior period benefited from the one-time royalty revenue without associated cost of goods sold. ANI also cited acquired-inventory valuation costs, generic price pressure, and product mix.
- Operating expenses increased 56.9% to $83.7 million. SG&A rose to $28.8 million, principally reflecting $11.0 million of higher sales and marketing expense for the Cortrophin launch and added Novitium costs. Depreciation and amortization increased to $14.6 million, largely due to acquired Novitium intangibles. The quarter included a $0.8 million contingent-consideration fair-value expense.
- Interest expense was $6.6 million, up from $2.5 million, mainly due to higher borrowings and rates following the Novitium acquisition. ANI recorded a $5.8 million income-tax benefit.
- Rare Disease segment revenue was $1.3 million and segment EBITDA loss was $10.4 million. Generics, Established Brands, and Other revenue was $63.2 million and segment EBITDA was $14.5 million.
- Cash and cash equivalents were $76.9 million at March 31, down from $100.3 million at year-end; restricted cash was $5.0 million. Total cash, cash equivalents, and restricted cash at quarter-end was $81.9 million. Current assets were $301.4 million and current liabilities $79.5 million.
- Term-loan principal was $299.3 million, with a 6.75% stated interest rate at quarter-end; the $40.0 million revolving facility was undrawn and available. The term loan matures in November 2027 and is secured by substantially all ANI and principal domestic subsidiary assets.
Material changes and management commentary
- Novitium contributed $19.2 million of revenue and a $0.2 million net loss in the quarter. Acquisition-related costs include higher amortization, operating expenses, and interest.
- ANI said generic and brand prescription levels had returned to essentially normal pre-pandemic levels in 2022, while COVID-related supply-chain disruption and extended material lead times continued.
- Management expects Cortrophin commercialization spending to be significantly higher in 2022 than in 2021. No numerical revenue or earnings guidance is provided in the filing.
- Management believes working capital, expected operating collections, and the available revolver will be sufficient to meet working-capital needs and debt obligations for at least the next 12 months.
Risks, contingencies, and unusual items
- ANI identifies generic pricing competition, regulatory approval and compliance, manufacturing partners, and reliance on single-source active-ingredient suppliers as business risks. One vendor represented 16% of Q1 inventory purchases.
- Three customers accounted for 64% of Q1 revenue and 84% of accounts receivable at March 31, 2022, creating customer-concentration exposure.
- The credit agreement includes financial covenants, including a maximum total net leverage ratio of 4.75:1.00, with tighter tests applicable to the revolver beginning in October 2022. ANI also notes a subjective acceleration clause tied to a material adverse effect.
- Pending matters include Bystolic antitrust litigation, for which ANI and other defendants moved to dismiss newly amended complaints, and patent litigation concerning proposed treprostinil extended-release product, with trial scheduled for May 2023. ANI states that it cannot estimate reasonably possible material losses for certain matters.
- Two products marketed without approved NDAs or ANDAs, EEMT and Opium Tincture, generated $4.0 million of Q1 revenue. A contract-manufactured product group marketed without an approved NDA generated $0.6 million. Regulatory action could affect these products or related revenues.
- The company remains subject to a federal investigation of the generic pharmaceutical industry initiated in 2017; ANI says it is cooperating and cannot predict the timing or outcome.
- ANI’s Form 10-Q states there were no material changes to the risk factors disclosed in its 2021 Form 10-K. Disclosure controls were assessed as effective; Novitium’s internal controls were still being integrated.
Important facts for investors to verify
- Whether Cortrophin Gel sales and adoption grow enough to offset substantial launch and commercialization costs.
- Whether generic-product growth can be sustained amid price erosion, and how much reported growth reflects Novitium consolidation and the depressed Q1 2021 comparison.
- Cash burn, working-capital requirements, debt service, covenant headroom, and the effect of variable interest rates on unhedged borrowings.
- Customer and supplier concentration, supply-chain lead times, and the estimated variable-consideration reserves for rebates, chargebacks, and returns.
- Developments in the disclosed litigation, regulatory matters, and federal investigation, including any financial or operational consequences.