ANI Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated results; dollar amounts are in millions unless noted. ANI develops, manufactures, and markets branded and generic specialty pharmaceuticals, operating facilities in the U.S. and Canada.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $52.9 | $46.5 | +13.8% |
| Operating income | $4.4 | $6.5 | −32.7% |
| Net income | $0.4 | $2.3 | −80.0% |
| Diluted EPS | $0.04 | $0.19 | Lower |
| Operating margin | 8.3% | 14.1% | −5.8 percentage points |
| Net margin | 0.8% | 4.8% | −4.0 percentage points |
| Operating cash flow | $14.3 | $22.9 | −$8.6 |
Revenue growth was led by generic products ($31.6, up 36.0%) and contract manufacturing ($2.4, up 157.9%, largely reflecting the WellSpring acquisition). Branded product revenue rose 5.7% to $17.5. Royalties and other income fell 77.1% to $1.3, primarily because products previously generating royalties were launched under ANI’s own labels.
Cost of sales, excluding depreciation and amortization, declined to $14.7 from $20.7; it was 27.8% of revenue versus 44.5%. Q1 2018 included $5.6 of acquired inventory costs on Inderal XL and InnoPran XL, while Q1 2019 benefited from lower royalties following a Teva royalty buyout. These savings were outweighed by higher R&D ($4.4), SG&A ($13.3), and depreciation and amortization ($16.1). Amortization included a $6.8 cumulative charge related to the Teva agreement amendment.
Liquidity, cash flow, and debt
- Cash and cash equivalents were $38.2 at March 31, down from $43.0 at December 31, 2018. Cash, cash equivalents, and restricted cash totaled $43.2.
- Current assets were $151.8 and current liabilities $165.1, a working capital deficit of about $13.2; the current ratio was approximately 0.92.
- Operating cash flow was $14.3. Investing cash outflow was $20.3, principally the $16.0 Teva royalty buyout, $2.5 ANDA purchase, and $1.8 capital expenditures. Financing cash inflow was $1.2. Cash and restricted cash decreased by $4.8.
- At quarter-end, the secured term loan balance was $71.3. Convertible notes had $118.75 principal outstanding, mature December 1, 2019, and were carried net at $114.2; the notes’ disclosed fair value was $130.3.
- The credit facility includes an undrawn $118.0 delayed-draw term loan restricted to repayment of the remaining convertible notes and an undrawn $75.0 revolver. ANI reported no borrowings on either facility at quarter-end. The facility has leverage and fixed-charge coverage covenants.
- Management stated that cash, anticipated operating revenue, the delayed-draw loan, and revolving facility should meet working capital needs for at least the next 12 months.
Material changes, outlook, and risks
- In January, ANI paid Teva $16.0 to end future royalties on products associated with ten ANDAs. The payment increased intangible asset carrying values, with $6.8 of cumulative amortization recognized in Q1. In March, ANI acquired rights to 35 previously marketed generic products for $2.5.
- Management expects R&D and SG&A expenses to remain higher in 2019 than in 2018, reflecting product development, Cortrophin work, expanded commercial operations, and anticipated revenue growth. Depreciation and amortization is also expected to be higher. The filing provides no numerical earnings or revenue guidance.
- Cortrophin Gel development advanced: ANI completed a second commercial-scale corticotropin API batch and began validation and registration-batch work. The company planned further registration and viral-clearance work and Cortrophin Gel batch manufacturing in Q2 2019. A prior approval supplement for Vancocin oral solution, filed in September 2018, remained part of the commercialization effort.
- Two marketed products, EEMT and Opium Tincture, lack FDA-approved NDAs or ANDAs and generated $5.4 of Q1 revenue. FDA enforcement or a requirement to obtain approval or withdraw could materially affect sales. A contract customer’s unapproved products also create exposure.
- Customer concentration is significant: three customers accounted for 35%, 23%, and 23% of Q1 revenue; together they represented 81% of accounts receivable at quarter-end. Three suppliers provided approximately 55% of inventory purchases, and many products rely on a single qualified API source.
- Contingencies include Louisiana Medicaid litigation, a Lanham Act/unfair competition case in the pre-trial motions phase, a newly asserted metoclopramide product-liability claim under review, and an ongoing federal generic-drug-industry investigation. ANI said it could not predict the outcomes of these matters; the Louisiana case could involve material damages, penalties, or fines.
- Convertible-note repayment/refinancing is a key near-term financing item. ANI has arranged the dedicated delayed-draw facility, but it includes a subjective acceleration clause and is subject to facility terms and covenants. Interest-rate swaps hedge term-loan exposure; reported swap fair-value changes contributed to a $1.8 other comprehensive loss in Q1.
Important facts for investors to verify
- Progress, timing, costs, and regulatory requirements for Cortrophin Gel and Vancocin oral solution commercialization.
- How ANI will repay or refinance the $118.75 principal of convertible notes due December 2019, and whether the delayed-draw facility remains available under its conditions and covenants.
- Whether generic and branded revenue growth can offset lower royalties, higher operating costs, and the ongoing amortization burden.
- Developments in FDA policy or action concerning unapproved products, and outcomes of the disclosed litigation and federal investigation.
- Customer and API supplier concentration, inventory reserves, and working-capital trends, including the reduction in operating cash flow year over year.