ANI Pharmaceuticals, Inc. — 2019 Form 10-K
Business context and reporting period. ANI is a specialty pharmaceutical company that develops, manufactures, and markets branded and generic prescription drugs, and provides contract manufacturing and development services. It operates three manufacturing facilities in Minnesota and Ontario. This annual report covers the fiscal year ended December 31, 2019; quarterly data are unaudited. Unless noted, amounts below are U.S. dollars.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $206.5 million | $201.6 million |
| Operating income | $16.4 million | $35.4 million |
| Net income | $6.1 million | $15.5 million |
| Diluted earnings per share | $0.50 | $1.30 |
| Cash from operating activities | $45.6 million | $67.1 million |
| Cash and cash equivalents at year-end | $62.3 million | $43.0 million |
| Outstanding term and delayed-draw loans at year-end | $187.5 million | $70.2 million |
- Revenue increased 2.5%. Generic product revenue rose 9.6% to $128.7 million, branded product revenue rose 5.3% to $63.8 million, and contract manufacturing revenue rose 22.2% to $11.1 million. Royalty and other revenue fell 79.9% to $2.9 million, largely as acquired products transitioned to sales under ANI’s own labels.
- Operating margin declined to 8.0% from 17.6%; net margin declined to 3.0% from 7.7%. Operating expenses increased 14.4% to $190.2 million. Key increases included R&D, SG&A, depreciation and amortization, and $6.7 million of Cortrophin pre-launch charges.
- Cost of sales, excluding depreciation and amortization, fell to $63.2 million from $73.0 million. The comparison benefited from the non-recurrence of $5.6 million of acquired-product inventory costs recorded in 2018; 2019 cost of sales included a $4.6 million inventory reserve charge.
- Interest expense, net, declined to $13.0 million from $14.8 million. ANI reported a $2.9 million income tax benefit in 2019, versus a $4.6 million tax provision in 2018; the 2019 result included tax-related effects such as release of ANI Canada’s valuation allowance.
- Operating cash flow decreased by $21.4 million, principally due to working-capital changes. Investing cash outflow was $27.5 million, including the $16.0 million Teva royalty buyout, product-rights acquisitions, and $6.6 million of capital expenditures. Financing cash flow was positive $1.3 million.
- Year-end current assets were $187.7 million and current liabilities $61.7 million; the reported working-capital ratio was 3.0. Cash less outstanding term loans was approximately $125.1 million of net debt. The $75 million revolving facility was undrawn.
Material changes and unusual items
- ANI borrowed $118.0 million under its delayed-draw term loan in November 2019 and used the proceeds, along with cash, to repay the $118.8 million of convertible notes that matured in December. The remaining $69.5 million term loan and $118.0 million delayed-draw loan mature in December 2023 and are secured by substantially all domestic assets.
- Fourth-quarter revenue was $48.0 million; ANI recorded an operating loss of $4.7 million and a net loss of $4.8 million. The quarter included a $4.6 million inventory reserve, primarily related to exiting methylphenidate extended release, and $6.5 million of Cortrophin pre-launch charges.
- ANI exited the ranitidine market after testing found NDMA above acceptable thresholds and its partner initiated a voluntary recall. ANI impaired the remaining $75,000 product-right asset.
- In 2019, ANI paid Teva $16.0 million to end future royalties on products associated with ten ANDAs, acquired a basket of 35 previously marketed generic-product ANDAs for $2.5 million, and acquired seven development-stage generic products for $2.3 million. The latter acquisition may involve up to $12.0 million in development and commercial milestone payments.
Outlook, commentary, and risks
- Management said it expected to file a Cortrophin supplemental NDA by the end of the first quarter of 2020, subject to completing required stability work and FDA review. Commercialization depends on approval and successful physician marketing and payer reimbursement.
- Management expected 2020 R&D expense to be lower than 2019 as Cortrophin redevelopment work concludes, while SG&A and depreciation and amortization were expected to be higher. It projected approximately $11–$12 million of Cortrophin pre-launch material expense in 2020.
- Management stated that cash resources and forecast operating cash flows should meet operating needs and debt obligations for at least the next 12 months, while noting that changes in revenue, expenses, or strategy could require additional financing.
- Two products marketed without FDA-approved NDAs or ANDAs—EEMT and Opium Tincture—generated $20.7 million, or about 10% of 2019 revenue. The FDA could require approval or market withdrawal; EEMT is also associated with an outstanding FDA hearing notice concerning estrogen-androgen products.
- Customer concentration is significant: three wholesalers generated approximately 80% of 2019 revenue, and represented about 88% of year-end net accounts receivable. ANI also relies on limited, often single-source API suppliers; imports and DEA quotas for controlled-substance ingredients create supply risks.
- Other material risks include generic price competition, regulatory and manufacturing compliance, litigation and product liability, Medicaid and Medicare rebate estimates, debt covenants and refinancing exposure, and potential disruption from LIBOR replacement. ANI disclosed ongoing litigation and a federal generic-industry investigation; outcomes were not predictable. The filing does not provide a clear estimate of reasonably possible material losses for these matters.
- Subsequent to year-end, ANI acquired Amerigen’s U.S. portfolio of 23 generic products for $52.5 million cash, plus $4.0 million for inventory and materials, with up to $25.0 million in contingent profit-share payments.
Important facts for investors to verify
- Progress and FDA decision on the Cortrophin supplemental NDA, and commercial launch timing, costs, payer coverage, and uptake.
- Whether revenue growth can translate into improved operating profitability after rising SG&A and amortization and the unusually low 2019 effective tax burden.
- Debt repayment capacity, covenant headroom, interest-rate arrangements, and the effect of the Amerigen acquisition and contingent payments on liquidity.
- Developments affecting unapproved-product sales, the EEMT hearing notice, imported API availability, and DEA quotas.
- Wholesaler concentration, receivables collection, and the adequacy of chargeback, rebate, returns, and inventory reserves.
- Updates on the disclosed lawsuits and federal investigation. The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2019.