ANI Pharmaceuticals, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing was signed March 9, 2023. ANI develops, manufactures, and markets branded and generic prescription drugs. Its 2022 priorities included launching Purified Cortrophin Gel, expanding generics capabilities following the Novitium acquisition, and consolidating manufacturing operations.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net revenue | $316.4 million | $216.1 million |
| Operating loss | $35.3 million | $39.8 million |
| Net loss | $47.9 million | $42.6 million |
| Loss per share, diluted | $3.05 | $3.40 |
| Cash from operating activities | $(31.2) million | $3.3 million |
| Cash used in investing activities | $15.7 million | $105.5 million |
| Cash from/(used in) financing activities | $(5.1) million | $194.6 million |
- Revenue rose 46.4%. Generic product revenue increased 46.4% to $210.1 million, including $70.1 million from Novitium products. Cortrophin Gel contributed $41.7 million in its first full commercial launch year, about 13% of revenue.
- Established-brand revenue declined 17.0% to $39.5 million, primarily due to lower unit sales and higher returns and rebates. Royalties and other revenue fell to $9.0 million from $15.0 million, mainly because 2021 included a final $11.2 million Yescarta-related royalty.
- Cost of sales, excluding depreciation and amortization, was $138.8 million, or 43.9% of revenue; the company reported a 42.2% ratio after excluding the impact of acquired-inventory fair-value charges. Operating loss improved, but net loss widened as interest expense increased to $28.1 million from $11.9 million.
- Year-end cash and cash equivalents were $48.2 million, plus $5.0 million of restricted cash. Working capital was approximately $244.8 million, with a 3.5 current ratio. The company said available resources were expected to cover working-capital needs and debt obligations for at least 12 months.
- Term-loan principal was $297.0 million; the balance-sheet debt carrying value, net of deferred financing costs, was approximately $286.5 million. The $40 million revolving facility was undrawn and available, subject to conditions. The debt is secured and subject to financial and other covenants.
Material changes versus the prior year
- Novitium, acquired in November 2021, contributed $90.3 million of 2022 revenue and added operating costs, amortization, and debt-related interest expense.
- Cortrophin Gel moved from launch preparation to full U.S. commercial launch in January 2022. Sales and marketing spending increased by $37.6 million, contributing to higher SG&A, while R&D expense nearly doubled to $22.3 million.
- ANI recorded $5.7 million of restructuring expense related to its planned Oakville, Ontario facility exit. It classified the site’s land and building, valued at $8.0 million, as held for sale.
- Operating cash flow shifted from positive $3.3 million to negative $31.2 million, driven by the net loss and working-capital investment, including higher receivables and inventory.
- Three wholesalers accounted for 59% of 2022 revenue, down from 68% in 2021; receivables from those customers represented approximately 82% of year-end accounts receivable.
Outlook, risks, contingencies, and unusual items
- Management plans continued investment in Cortrophin Gel and the rare-disease platform in 2023 and beyond. The filing provides no specific numerical revenue or earnings guidance.
- ANI planned to cease Oakville operations by the first quarter of 2023 and was seeking a buyer; timing, sale proceeds, and the effects of the transition were uncertain. The filing also reports that most products had been transferred to U.S. facilities.
- The Novitium acquisition includes up to $46.5 million of contingent consideration. The year-end fair-value liability was $35.1 million, and 2022 included a $3.8 million fair-value expense. Potential payments depend on financial and regulatory milestones and future product profits.
- Two products marketed without approved NDAs or ANDAs, EEMT and Opium Tincture, generated $14.2 million of 2022 revenue. ANI warned that FDA action could require approval applications or withdrawal from the market.
- Legal matters include ranitidine-related litigation involving Novitium, an enalapril oral-solution patent case, and an industry investigation. ANI said it could not predict outcomes or estimate a range of reasonably possible material losses for certain matters. Bystolic antitrust claims were dismissed with prejudice in February 2023, with plaintiffs retaining an appeal period.
- The auditors gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Material weaknesses involved Novitium controls across purchasing/payables, manufacturing and inventory, payroll, subsidiary-level financial close, and IT access controls. Management expected remediation efforts to be completed in 2023.
- Chargeback accruals were $148.6 million and were identified as a critical audit matter. Management’s sensitivity disclosure states a 10% change in chargeback estimates would affect 2022 net revenue by $64.2 million.
- Interest-rate disclosures are inconsistent: the filing reports a 6.75% Term Facility rate in one section and 10.39% at year-end in the debt note. A swap covered $151.5 million of notional principal at a fixed 2.26% rate.
- Other key risks include generic price competition, customer and supplier concentration, reliance on single-source APIs and contract manufacturers, regulatory and product-quality requirements, rebate and returns estimates, debt service and covenant compliance, and healthcare pricing reforms.
Important facts for investors to verify
- Track Cortrophin Gel sales, access and reimbursement, market acceptance, and commercial spending against management’s continued-investment plans.
- Assess operating cash conversion and working-capital needs, especially receivables, inventory, and customer concentration.
- Confirm the applicable Term Facility interest rate, debt-service burden, covenant headroom, and contingent consideration obligations.
- Monitor remediation and independent validation of the disclosed material weaknesses, and whether internal controls become effective.
- Review chargeback, rebate, and returns assumptions, including the large chargeback reserve and its disclosed sensitivity.
- Follow the Oakville closure and sale, the transfer of production, and any supply or restructuring costs; also monitor material legal and regulatory developments, including ranitidine claims and the unapproved products.