ANI Pharmaceuticals, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. ANI develops, manufactures and markets branded and generic pharmaceuticals. A June 19, 2013 merger with BioSante was accounted for as a reverse acquisition: ANIP is the accounting acquirer, and 2013 includes both companies’ results after the merger, while prior periods reflect ANIP. This limits direct comparability.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Net revenue | $30.1 million | $20.4 million |
| Operating income (loss), continuing operations | $0.9 million | $(0.04) million |
| Net income (loss) | $0.3 million | $(1.5) million |
| Cash used in operating activities | $(5.5) million | $(0.1) million |
| Cash and cash equivalents at year-end | $11.1 million | $0.01 million |
| Borrowings under line of credit at year-end | None | $4.1 million |
Gross margin, calculated from revenue less cost of sales excluding depreciation and amortization, increased to 66.8% from 55.0%. Operating margin was 3.0%, versus negative 0.2%; net margin was 1.0%, versus negative 7.4%. The company reported $0.1 million of net income from continuing operations; total net income also included a $0.2 million gain from discontinued operations. Common-stockholder results were affected by preferred-stock dividends, and reported basic and diluted loss per share was $0.92.
Operating cash outflow widened despite the return to net income, principally reflecting working-capital needs, including higher accounts receivable. The $20.3 million of investing cash inflow mainly reflects $18.2 million of cash acquired in the merger and release of $2.3 million of restricted cash, not recurring operating cash generation. Financing cash outflow was $3.7 million, primarily from repayment of the revolver. At year-end, current assets were $27.7 million and current liabilities $3.5 million.
Changes and notable items
- Revenue increased 47.7%. Generic product revenue rose 89.8% to $19.3 million, and branded product revenue rose 84.3% to $3.4 million. Contract manufacturing revenue fell 20.4% to $6.0 million as customer orders declined.
- Esterified Estrogen with Methyltestosterone (EEMT) revenue increased approximately $8.1 million after a significant competitor stopped producing the product in the third quarter. EEMT accounted for 33% of 2013 net sales, compared with 9% in 2012; Opium Tincture accounted for 16%, compared with 20%.
- SG&A rose 72.1% to $16.4 million, including $6.2 million of merger-related expenses. The filing reports $7.1 million of total merger transaction costs across 2012 and 2013, including non-cash transaction bonuses.
- In December 2013, ANI agreed to acquire 31 previously approved generic-drug ANDAs from Teva for $12.5 million plus a percentage of future gross profits. The first $8.5 million installment was paid January 2, 2014; the remaining $4.0 million was due upon receipt of hard-copy materials. The assets were not recorded at year-end.
- The Teva license for a male testosterone gel was valued at $10.9 million in merger accounting and is amortized over 11 years. Teva had not begun marketing the product; timing of royalties remained uncertain.
Outlook, risks and contingencies
- Management said cash, working capital and anticipated operating revenue should cover requirements for at least the next 12 months. The company had no bank credit line at year-end and acknowledged it may need financing if assumptions fail. Management also stated ANI had never generated positive operating cash flow; its accumulated deficit was $48.5 million.
- The 2013 improvement depends significantly on EEMT’s reduced competition and higher pricing, which management said may not continue. The FDA could require approval for, or withdrawal of, EEMT or Opium Tincture, both marketed without approved NDAs or ANDAs. Together these products generated $14.6 million in 2013.
- ANI relies on imported APIs and generally has one qualified source per product. Supply disruptions, FDA import restrictions, or failure to obtain the DEA’s annual opium quota could disrupt production. Three suppliers represented 37% of 2013 cost of goods sold; three wholesalers represented 55% of gross sales, and 68% of year-end net receivables were due from three customers.
- Management expected R&D and other operating costs to increase to support product development and growth. ANI had five ANDAs in submission and seven additional ANDAs in its pipeline at year-end. The filing gives no specific revenue or earnings guidance.
- Contingencies include metoclopramide/Reglan product-liability cases (85 complaints covering 2,934 plaintiffs; insurance excludes these claims), a Louisiana Medicaid lawsuit relating to products from a former operation, and an appealed Illinois shareholder derivative case. The company did not accrue for the derivative litigation; outcomes and possible losses were not estimable. The earlier federal shareholder class action and federal derivative cases were concluded after plaintiffs did not amend their complaints.
- Approval of additional shares under the stock plan was pending. If approved, 325,000 previously board-approved options could result in estimated compensation expense of about $5.0 million based on the December 31 stock price, recognized over the remaining service period; actual expense could differ.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to attest to internal-control effectiveness.
Important facts for investors to verify
- Whether EEMT’s pricing and market share persist, and whether FDA action or imported-API supply affects EEMT or Opium Tincture.
- Post-payment liquidity after the $8.5 million Teva installment, funding of the remaining $4.0 million, and the acquired ANDAs’ launch timing, costs and sales contribution.
- Whether ANI can convert reported earnings into positive operating cash flow while managing customer concentration and receivables.
- Updates on the Louisiana Medicaid and metoclopramide litigation, including potential exposure not covered by insurance.
- The status and potential dilution and expense from the pending stock-plan share increase and option grants.