ANI Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results. ANI develops, manufactures, and markets branded and generic specialty pharmaceuticals, with operations in the United States and Canada. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Net revenue | $49.8 | $52.9 |
| Operating income (loss) | $(7.8) | $4.4 |
| Net income (loss) | $(7.0) | $0.4 |
| Diluted EPS | $(0.59) | $0.04 |
| Cash from operations | $1.7 | $14.3 |
| Cash and cash equivalents at period end | $20.4 | $62.3 at Dec. 31, 2019 |
| Total current assets / liabilities | $158.7 / $79.4 | $187.7 / $61.7 at Dec. 31, 2019 |
Operating margin was approximately (15.7)%, compared with 8.3% a year earlier; net margin was approximately (14.1)%, versus 0.8%. Cost of sales excluding depreciation and amortization was $21.8 million, or 43.8% of revenue, compared with $14.7 million, or 27.8%. Excluding $2.7 million of acquired-inventory fair-value expense, cost of sales was 38.4% of revenue.
Investing cash outflow was $57.5 million, primarily for the Amerigen acquisition and $1.5 million of capital expenditures. Financing cash inflow was $13.9 million, including a $15.0 million revolver draw. ANI reported $201.6 million in principal borrowings at quarter-end: $68.6 million Term Loan, $118.0 million delayed-draw term loan, and $15.0 million revolver. The company had $60.0 million of revolver capacity remaining. It reported $5.0 million and $8.4 million of interest-rate-swap liabilities, respectively, and a total $13.4 million swap liability.
Changes versus the prior comparable period
- Revenue fell 5.9%. Generic product revenue rose 18.7% to $37.5 million, while branded product revenue declined 47.8% to $9.2 million. Lower sales of Inderal XL, Inderal LA, Atacand, and Arimidex contributed to the branded decline.
- The generic increase reflected acquired and launched products, including Vancomycin Oral Solution and products from Amerigen; declines in several existing generic products partly offset growth.
- ANI moved from operating and net income to losses. Higher cost of sales, R&D, and $4.6 million of Cortrophin pre-launch charges contributed; lower amortization and interest expense partly offset these costs.
- Operating cash flow declined to $1.7 million from $14.3 million, primarily due to working-capital movements. Cash fell by $41.9 million during the quarter, including restricted cash.
Outlook, management commentary, and risks
- Cortrophin: ANI filed its re-commercialization supplemental application on March 23, 2020. The FDA initially set a July 23, 2020 action date but issued a Refusal to File letter on April 29. ANI planned to request a Type-A meeting to discuss deficiencies and next steps. Management estimated $14–16 million of Cortrophin pre-launch material expense for 2020; this is not full-year earnings guidance.
- Acquisition: ANI acquired a U.S. portfolio of 23 generic products and related materials from Amerigen. The filing reports $56.8 million purchase consideration and up to $25.0 million of contingent payments over four years. Some acquired products were commercial; others were pending launch, filed, or in development.
- Liquidity: Management said cash, expected operating revenue, working capital, and available revolver capacity were expected to fund working-capital needs and debt obligations for at least 12 months.
- COVID-19: ANI reported no significant disruption in Q1, but said the pandemic’s future effects on operations, supply chains, customers, markets, and financial condition were uncertain and could be material.
- Leadership: CEO Arthur Przybyl was to depart May 10, 2020; Patrick Walsh was appointed interim CEO effective May 11 while the board searched for a permanent replacement.
- Other risks: Two marketed products lacked approved NDAs/ANDAs and generated $4.4 million of Q1 revenue. The filing also describes litigation and a federal generic-pharmaceutical-industry investigation, whose outcomes ANI said it could not predict. Three customers accounted for 72% of Q1 revenue and 90% of receivables.
Most important facts for investors to verify
- FDA follow-up, timing, remediation requirements, and commercial prospects for Cortrophin after the Refusal to File letter.
- Revenue and margin trends by product, particularly the ongoing branded-product declines, generic price competition, and costs associated with acquired inventory.
- Cash conversion, working-capital needs, acquisition-related contingent payments, and debt service under the credit facility.
- Customer concentration and the collectability of receivables, alongside exposure to single-source API suppliers.
- Potential financial and operational effects of COVID-19, the unapproved products, and disclosed legal or regulatory matters.