ANI Pharmaceuticals, Inc. (ANIP) Q2 2015 Earnings Report, Transcript and Summary

Good morning. My name is [Terif] [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the ANI Q2 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Arthur Przybyl, President and CEO.

Good morning, everyone. And welcome to ANI’s earnings conference call for the second quarter 2015. My name is Art Przybyl, and I am the CEO, and with me today is Charlotte Arnold, our Chief Financial Officer. Before we begin, I want to refer everyone to the forward-looking statements language in this morning’s press release and ask each of you to review it carefully as important context for this conference call. Discussions will also include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today. ANI’s second quarter and first half 2015 revenues of $19.5 million and $38.3 million, represent increases of 194% and 118%, respectively, over the prior year periods. Our second quarter and first half 2015 adjusted non-GAAP EBITDA of $10.9 million and $22.3 million represent increases of 4700% and 399%, respectively, over the prior year periods. In today's press release, we have updated our second half 2015 net revenue guidance to be in the range of $44 million to $46 million, adjusted non-GAAP EBITDA guidance to be in the range of $26 million to $28 million and our adjusted non-GAAP diluted earnings per share guidance to be in the range of a $1.32 to a $1.38 per share. The revenue guidance anticipates increased EEMT revenues from new sales agreements. EEMT revenues increased from $8.9 million in the first quarter to $9.8 million in the second quarter, and we expect this revenue trend continue throughout the rest of the year. We also expect increased revenue contributions from our Methazolamide product and new revenue contribution from two new products, Oxycodone Solution and Nimodipine Capsules. These two new products will be minor revenue contributors in 2015 due to their end of the year launch dates. Included in our press release today for the first time is the comprehensive table of anticipated product launches between now and the end of 2016. The table includes the product name, several products are not disclosed yet for obvious reasons, IMS annual market size, estimated launch timeframe and any regulatory action required to launch the products. To summarize the table, we expect to launch 11 products with an annual IMS market size of $728 million, not including the undisclosed market size for the anticancer product. To launch all the products on time, two FDA ANDA approvals are required, for the Dexcel partnered product and the anticancer product. We feel confident these two approvals will occur in the necessary timeframe to allow us to launch these products as anticipated. Our anticancer product recently received a target action date of February 26, 2016, from the FDA. It should be noted that the target action date is not a guarantee of FDA approval on that date and additional information can still be requested by the agency. As of today, we have 147 million in cash, net of our recent transaction. This cash continues to be earmarked for business development activities, asset and product acquisitions. Recently on July 13, 2015, we announced that we had acquired 22 generic drug products for $25 million. This recent acquisition served to expand our product pipeline to 67 products, representing approximately $4 billion in total IMS annual sales. And just as important, 48 of our pipeline products can be commercialized through either CBE-30 or prior approval supplements. In other words, the faster route to commercialization since these 48 products were previously approved by the FDA. Although we have not found a larger transaction to help our company achieve scale faster, we continue to find value in smaller transactions that serve to expand our product lines now and in the near future. Since 2014, we have invested $65 million in six transactions for two branded products and 55 generic products. I anticipate this trend of targeting smaller transactions that create long-term value for us to continue for the remainder of 2015. Turning to product development. Our objective is to file three prior approval supplements, six CBE-30s, our first Paragraph IV filing and one internally developed ANDA between now and the end of 2016. We have subsequently added personnel resources to allow us to accomplish these important development and regulatory filing objectives. I will now turn the conference call over to our Chief Financial Officer, Charlotte Arnold.

Good morning everyone and thank you for joining our conference call to discuss ANI’s second quarter financial results for 2015. We were very pleased to report ANI’s strong second quarter financial performance this morning. Our revenues grew during the quarter by 194% over the prior year period while our cost of sales decreased as a percentage of net sales from 32% to 16%, a decrease of 16 percentage points. These results are directly attributable to the organic growth in our generic product sales as well as sales from our mature brand products, Lithobid and Vancocin, both of which we acquired in the third quarter of 2014. Also our adjusted non-GAAP EBITDA for the three months ended June 30, 2015 increased by over 4700% versus the prior year period from point $0.2 million to $10.9 million. And we generated adjusted non-GAAP earnings per share for the quarter of $0.55. Turning now to some of the details of our financial performance. Net revenues in the second quarter for our generic product were $13.8 million and $2.1 million for our mature brand increases of 185% and 275% respectively. The primary reason for this generic sales increase were increased sales from EEMT as well as sales from our methazolamide, etodolac and propafenone products, which we launched in the fourth quarter of 2014 and the first quarter of 2015. The increase in our mature brand sales resulted primarily from our Lithobid and Vancocin products. Our contract sales development services and royalty revenues increased by 191% from $1.2 million in the prior year period to $3.6 million in the second quarter of 2015 due primarily to royalties received on the authorized generic of Vancocin. We expect to launch our own authorized generic for Vancocin under the ANI label in the fourth quarter of 2015, which will replace the authorized generic product currently on the market. In our press release earlier this morning, we updated our financial guidance for 2015 to be between $82 million and $84 million in revenues, adjusted non-GAAP EBITDA of between $48 million and $50 million and adjusted non-GAAP earnings per share of between $2.44 and $2.50. Our updated financial guidance is based on a result in the first half of 2015 as well as our expectations for the balance of this calendar year. As detailed in this morning's press release, we have narrowed the ranges of our net revenues, cost of sales and adjusted non-GAAP EBITDA guidance are reflection of the shorter remaining forecast period of six months. In addition, we have increased our estimates of operating expenses and research and development cost, which reflects our expectations that are current level of business and product development activity, will continue into the second half of 2015. Turning now to the balance sheet. We ended the quarter with $166.7 million in unrestricted cash and cash equivalents. During the six months ended June 30, 2015, we generated $2.3 million in positive cash flow from operations, which was net of a $5.2 million increase in our inventories. In addition, we acquired an additional ANDA, Flecainide from Teva for $4.5 million, which we expect to launch in the first quarter of 2016. And as previously announced on July 13th, we acquired 22 generic products from Teva for $25 million, which was funded using a portion of the $166.7 million in cash on hand at quarters end. In conclusion, we are very pleased with our results for the first half of 2015 and look forward to the balance of the year. We will report our third quarter results in November and our full year financial performance in February 2016. At this point, I will turn the call back over to our President and CEO, Art Przybyl.

Thank you, Charlotte. We will now open conference call to questions. Moderator?

[Operator Instructions] And our first question comes from Rohit Vanjani with Oppenheimer.

Hi, Art and Charlotte. Thanks for taking the questions. So for those two product launches, Nimodipine and Oxycodone Hydrochloride, what’s involved there? What do you have to do to still launch those products?

We have to -- with Nimodipine, we don’t manufacture the product. So, we will be receiving that product and finish dosage form in short order from Sofgen. They are responsible for the validation effort, the manufacturing of three commercial batches prior to launch. And that is the same exact progress that we are going through in our own facility in Baudette for Oxycodone solution now, which is manufacturing again of three validation and commercial batches and then we can launch the products.

And that’s for six months accelerated stability?

No, no. There is no need for accelerated stability that’s already been proven in the filing. But we have to validate the product. It’s a validation process.

And how long does that validation process take?

Well, it depends on sometimes, lead time in terms of API for manufacturers but as you could see between now and sometime in the fourth quarter, we will be launching the product. Typically, it’s -- I don’t know, I want to say maybe 90 to 120 days.

Okay. I mean, it could be at the beginning of the fourth quarter that you will launch that product.

Yeah. We have not yet, obviously detailed an actual launch date. When we launch the product, we will issue a press release so everybody will know that the product has been launched on that specific date.

Okay. And then on EEMT, in the release you discussed having been awarded those two contracts, one in 2Q and one in 3Q. So presumably, you’ve already sold to the contracts awarded in 2Q, is that correct?

That is correct.

And then are both of those contracts now included in guidance?

Yes, they are.

Okay. And then Vancocin, is there any update in that franchise? I think last quarter you talked about not experienced muted demand typical of historical norm, was there any pickup there or is it still tracking where you saw last quarter?

Still tracking where we saw last quarter. So the reforecast that Charlotte and I did on the product is holding to the levels that we’ve forecasted to. Okay.

Okay. And then with Methazolamide, you mentioned that in your prepared remarks, I missed the commentary. What was the update in that franchise?

We have -- I think our market share on Methazolamide right now is approximately 10%. And we’ve recently won an award with one of the big threes, if you will, that should take our market share north of 20% on the product.

Is that included in guidance?

And that is already effective. I am sorry.

Is that included in guidance as well?

That is, yes.

Okay. And then last for me, I think the brand and EEMT got a warning letter from the FDA for not paying some of differences. Have you noticed any market dynamic change there because of that warning letter?

Somewhat, but I don’t really care to speak too openly about other companies quality issues and standards. So we are on track to in my opinion certainly capture as we anticipated 80% market share or better as we move into the fourth quarter.

Okay. Great. Thanks for taking my questions.

You are welcome, Rohit.

Thank you. Your next question comes from Louise Chen with Guggenheim.

Hi. Thanks for taking my questions. Can you hear me, okay?

I can Louise. Good morning.

Good morning. Okay. So first question I had here was on the Teva products. One of the things that we’ve gotten questions on is, if you could provide more color. I know maybe you don’t want to talk about the individual products, but any color you could provide here would be helpful. And then secondly, given the fact that Teva is now looking like it’s going to buy our Allergan’s generics business. I am wondering if you expect product divestitures and maybe you could give some color on how you have such a great working relationships with Teva in general and that you’ve been able to get a lot of products from them there? And then the last question, I was curious about was business development. Curious if you are more interested in transformational or bolt-on deals and where are you seeing the best opportunities as you look out there? Thank you.

So let’s try to take the last part of your question first. If the transformation opportunity comes our way, the company would certainly be interested in exploring it. But we have seen certainly that -- opportunities of that nature do not come cheap in today’s marketplace, which is why I have guided more to the fact that we are very happy with the value that we’re finding in our -- what we call our smaller transactions. And we expect those smaller transactions to continue as a trend in our business development activities certainly between now and the rest of the year. Our relationship with Teva was really cultivated by outstanding jobs that our VP of Business Development is doing, Rob Schrepfer and that started over 18 months ago and that relationship has blossomed into a scenario whereby we feel that Teva is very happy with our performance associated with launching some of these products that we’ve acquired, and obviously not just getting the upfront money in the transaction but also receiving royalties from the products that we’ve launched. So the opportunity associated with the recent Teva transaction buying Allergan or Actavis' generics. We certainly would like to think that we can participate in any opportunities for products that have to be spun off due to FTC concerns. And we would continue to represent to Teva that we hopefully are likely candidate for those opportunities from the standpoint that they know us and they know that we can if time is of the essence for them to close their transaction and need to get product transactions closed that are required spin-offs, we can certainly close in a timely with the sense of urgency associated with that. So we certainly hope to participate in any Teva-Allergan potential generics spin-offs. And I am sorry Louise, what was the first part of your question.

So the first part of the question was just, if you could give any color at all on the Teva portfolio. I think people work here as to why you didn’t list the product and last time you did?

Well, you’re going to see the products listed in the third quarter too. And we just decided that as we’re advancing, I think you’ve got a pretty good idea from the table that we put out that those to five CBE-30 products are tablet products. And so, we are certainly and they represent total IMS market size of $250 million. So, I think that is the immediate upside to the tablet transaction that we can launch five of the products in that transaction in what I would consider to be a short timeframe and get them out between now and the end of 2016 and they could be material revenue and profit contributors. There is one product in particular that we have not disclosed yet. There is one product in particular that has only one competitor in the marketplace today. Its undergone substantial price increases and we would be essentially the second market competitor. And obviously, those are the type of opportunities that resonate with us when we look to pull down these products in these bundles from companies.

And what year would that one do you think come to the market?

That’s going to come to market next year.

Okay. Thank you.

You welcome.

Thank you. Your next question comes from Scott Henry with ROTH Capital.

Thank you and good morning.

Good morning, Scott.

I guess, a couple of questions to start with on EEMT. The two new contracts for EEMT, can you put the size of those contracts into context? I guess, what I’m really trying to get out is where should we think about peak share for this product as supply wanes off for some of the other competitor? I mean is 85% ….

80% is our target. We’ve always guided to approximately 85% of that market. And we expect that to occur in the fourth quarter of this year.

Okay. Great. That’s very helpful. And then staying on EEMT, how should we think about pricing power from here?

Right, So, well, we’ve always talked about the fact that as we get our market share back. This is the market share that we had lost to Amneal seat when they reentered the market for a limited period of time. Once we get that market share back, we’ll take a look at where the product is priced in comparison to another postmenopausal product premiere in this on the market. We see that that company who markets that product Pfizer, essentially raises their price about 10% every six months. We would like to keep our product somewhat aligned with their pricing. So I think it’s reasonable to think about what consideration we would give to a price increase associated with that other postmenopausal product after we gain our share in the fourth quarter this year.

Okay. Thank you. That is helpful. And are you hearing anything about anyone making an attempt to get into this market or do you think -- and it seems like the status quo should continue with limited suppliers, but just wondering if you are hearing anything different?

Well, competitively no, not in a finished doses form. And I think, again, there is and always has been somewhat of a regulatory barrier to entering a market for an unapproved drug product after FDAs revised guidance in -- I believe was October of 2011. And so those barriers are not going away, those regulatory barriers remain today. So at this point of time, no, we don’t see another competitor potentially entering the market.

Okay. And as far as the raw material is that still -- as hard to get as it has been?

Yes.

Okay. Shifting gears then, contract services and other income to the big jump to $2.5 million driven by Vanco royalties. My question is, is that $2.5 million is that good go-forward number, should I expect to see that grow or decline from here?

No. That was one time event. That was a true-up. And from authorize generic partners. So, no, you should not anticipate the royalty line to go up. In fact, you should anticipate the royalty line to go down, however, offset by additional product revenue. So the point I’m trying to make is that, our royalties that we receive now are primarily driven by the authorized generic sales from vancomycin. And as Charlotte mentioned in her narrative, we are taking over the marketing of the generic portion of vancomycin in November. So you will see our royalty line go down and certainly, we anticipate that will be more than offset by our revenue line, our product revenue line increasing.

Okay. Great. Well, thank you for taking the questions.

You’re welcome, Scott.

Thank you. And we have a follow-up question or comment and it comes from Rohit Vanjani with Oppenheimer.

Hey, Art and Charlotte, sorry. So for the Teva acquired products from July, before you were saying that seven products drove the deal for them, CBE-30 through the PASs. But in the table and then as you mentioned you list five CBE-30s. Just wanted to get your thinking there on what change and one of those products have moved from? That’s all I got.

No. You are exactly right. One of our products we moved for a prior approval supplement to a CBE-30.

And was the product that moved the one that you mention the one competitor market?

Right. That’s correct.

And then just to confirm, you haven’t received a TAD yet for the Dexcel partners products or have you?

Well. If our partner has received that, they have not communicated that to us.

Okay.

And not all products receive target action dates.

Okay. And then last for me. Did you receive a TAD for Nimodipine, and if so, when was it? I just want get a sense of how the FDA is hitting their timelines?

We did receive a target action date for Nimodipine and Oxycodone. And in both cases, we received the approval prior to the target action date. But that should not be viewed as the report card for target actions dates from FDA. That should be viewed as we’re ecstatic we got our approvals prior to the target action dates.

Okay. Great. Thanks.

You’re welcome.

Thank you. And at this time, there are no further questions.

Then, I’d like to thank everybody for joining ANI second quarter conference call today. Have a great day. Bye-bye.

Ladies and gentlemen, thank you for joining today’s conference. Thank you for your participation. That does conclude the conference. You may now disconnect.