ANI Pharmaceuticals, Inc. (ANIP) Q2 2016 Earnings Report, Transcript and Summary

Good morning, and welcome to the ANI Second Quarter 2016 Earnings Call. At this time, all participants are in a listen only model. Later you will have the opportunity to ask questions during the question-and-answer session [Operator Instructions]. Please note, this call maybe recorded. It is now my pleasure to turn today’s program over to Mr. Arthur Przybyl. Please go ahead.

Thank you. Good morning, everyone. And welcome to ANI's earnings conference call for the second quarter 2016. My name is Art Przybyl, I am the CEO. And with me today is Stephen Carey, 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. Today, we reported record second quarter results, as evidenced by net revenues of $31.3 million, adjusted non-GAAP EBITDA of $15.4 million of adjusted non-GAAP net income per diluted share of $1.11, increases of 61%, 42% and 63% respectively as compared to the prior year period. As a result of these reported financial metrics, we are increasing our annual guidance to better reflect our business. Annual 2016 revenues in the range of $119 million to $134 million, adjusted non-GAAP EBITDA in the range of $58 million to $66 million and adjusted non-GAAP net income per diluted share of $4 to $4.25. Our two significant business platforms, generic pharmaceutical and branded pharmaceutical products generated $22.5 million and $7.5 million in second quarter net revenue, increases of 63% and 251% respectively as compared to the prior year period. These increases were due to several new product launches that occurred throughout the second quarter. As discussed previously, our expectation is that revenues and EBITDA will continue to grow sequentially throughout the year due to continued new product launches. As further evidence to that point, we recently launched nilutamide, a first generic anti-cancer product and remain on track for launch in late September, our first generic anti-infective drug product. We continue to guide to approximately $20 million in combined annualized EBITDA from these important products. Although we increased guidance for 2016 today, we remain focused on our fourth quarter EBITDA run rate as a more representative EBITDA number for our business, heading into 2017. Since the beginning of the year, we’ve closed three transactions; the Corticotropin NDAs; the exclusive rights to distribute the authorized generic of Lipofen and hydrocortisone one and 2.5% rectal cream; and the acquisition of the Inderal NDA, which includes the Propranolol authorized generic. Additionally, we are partnering with Aspen for three drug products hydroxyprogesterone caproate which was launched late in the second quarter and two unannounced drugs. One of these drugs was already in our portfolio and most recent partnership will be announced when ANI launches the product, currently anticipated in the fourth quarter of this year. For context, neither the undisclosed Aspen product nor HPC are included in our guidance. I would like to provide a brief update on colpotrophine lead commercialization effort, the product continues to attract to our internal timelines and colpotrophine dedicated development teams assembled and engaged. We are as optimistic as ever on the prospects for colpotrophine and we’ll continue to bring to bear all resources and investments necessary in an effort to relaunch the product. Finally, I want to publicly and personally congratulate both our quality and operational teams in Baudette. We recently conclude a successful general GMP FDA inspection. Our first priority as a manufacturer of publicly consumed drug products is and always will be an adherence to our quality standards. I will now turn the conference call over to our CFO, Stephen Carey, who’ll provide you with more details on our financial results.

Thank you, Art, and good morning to everyone on the line. During my remarks this morning, I will refer to certain non-GAAP measures. It is important to note that we believe that these non-GAAP measures will aid the investors and analyst community by provide further insights into our results. These measures should be considered in addition to, and not in was, EPS and other key measures reported under GAAP. Please refer to the financial exhibit supplied with our press release this morning for a detailed reconciliation between our key GAAP and non-GAAP measures. As are indicated ANI has posted record quarterly net revenues, adjusted non-GAAP EBITDA and adjusted non-GAAP net income per diluted share. Net revenues for the quarter ended June 30, 2016 totaled $31.3 million, representing a 61% increase over prior year and a 52% increase over the first quarter of 2016. Adjusted non-GAAP EBITDA which is a key metric utilized by management in evaluating operational performance increased nearly $4.6 million or 42% from the year ago period to $15.4 million. In addition this represents a $4.1 million increase from the $11.4 million posted in the first quarter of 2016. GAAP EPS declined $0.31 per diluted share in the second quarter -- declined from $0.31 per diluted share in the second quarter of 2015 to $0.10 per share in the second quarter of 2016. GAAP EPS includes the impact of depreciation and amortization, which increased $4.5 million from $1.4 million in the prior year to nearly $6 million in the current year driven by amortization of a significantly higher intangible asset base. In addition GAAP EPS includes $2.1 million incremental cost of sales related to the inventory step up recognized in the asset purchase accounting for Inderal LA and Propranolol ER inventory. Our adjusted non-GAAP net income per diluted share metrics which excludes these impacts increased $0.43 or 63% from prior year to $1.11 per diluted share. This is an increase of $0.35 per diluted share as compared to the $0.76 posted in the first quarter of 2016. Turning to the details of our sales performance, net revenues in the second quarter for our generic products grew $8.7 million or 63% from the year ago period to $22.5 million. While net revenues from our branded pharmaceutical products more than doubled to reached $7.5 million, these strong results were driven by seven product launches during the quarter with the April launch of Propranolol ER and Ideral LA leading the way for the generic and branded product lines respectively. Other strong revenue contributors included fenofibrate, which was launched in April as well as Vancocin and Vancomycin. Revenues from contract manufacturing services were up modestly while contract services and other income declined $2.3 million primarily due to the fourth quarter 2015 discontinuation of royalties received on sales of the authorized generic of Vancomycin, which is now sold directly by ANI and reflected in our generic sales performance. Cost of sales as a percentage of net revenues increased from 16% to 38% partially driven by the aforementioned $2.1 million inventory step up. Excluding this amount, cost of goods sold represents 31% of net revenues for the second quarter of 2016, reflective of an increase in sales of products with profit sharing arrangements. This is a trend that we expect to continue in the second half of 2016. Selling, general and administrative expenses of $7.6 million increased $2.1 million over prior year and $1.7 million as compared to the first quarter of this year. And reflect $1.3 million of cost related to the May 2016 separation and release agreement with ANI’s former CFO. Approximately $900,000 of this amount is related to stock based compensation and therefore added to our adjusted non-GAAP measures. Turning to forward-looking information, in our press release this morning, we have updated our full year guidance for 2016. We have reiterated net revenue guidance of between $119 million and $134 million for the year and have increased both below and high end of our adjusted net GAAP EBITDA guidance by $3 million resulting in revised guidance of between $58 million and $66 million. In addition, we have both increased and tightened our adjusted non-GAAP net income per diluted share guidance by raising the low end of the range by $0.46 to $4 per diluted share and the high end of the range by $0.34 to $4.25 per diluted share. With the first half of the year now behind us, these repositions reflect an overall tightening of our model including upward revenue revision for our Inderal and Propranolol franchise and they’ve reviewed into our estimated full year tax rate. Our GAAP effective tax rate for 2016 is now forecasted to be approximately 53% of pretax revenue while the estimated cash tax rate which we utilize represent estimated current tax payable in our non-GAAP net income per diluted share measure is now forecasted to be approximately 61% of pretax income. Finally, as it relates to our balance sheet, as of June 30, 2016, we had cash and cash equivalents of $15 million on hand. This balance is reflected both year-to-date cash flow from operations of $14.3 million and over $144 million of cash deployed to acquire products and distribution rights during the first half of the year. In May we secured a $30 million asset based line of credit with Citizens Bank. This line of credit was undrawn as of the balance sheet date and remains undrawn as of today. In summary, the financial results posted for the second quarter of 2016 reflect an important evolution of ANI evidenced by the continued broadening of our product portfolio and multiple revenue and profit drivers. The results also represent a meaningful stepping stone towards our stated near term goal of becoming $100 million annualized EBITDA Company. With this, I will turn the call back to our President and CEO, Art Przybyl.

Thank you, Stephen. Moderator, we will now open the conference call to questions.

[Operator Instructions] Your first question comes from Louise Chen of Guggenheim.

This is [indiscernible] for Louise. Congrats on the performance this quarter. Couple of questions from us on modeling, on the branded side, was there any stocking for Inderal LA this quarter? And how should we think about the level of branded sales going forward, is this quarter a good run rate to I assume for the rest of the year? And then on EPS, how should we think about EPS sequentially for the rest of the year? And then one final if I can sneak it in, can you give us an update on the pricing environment you’re seeing in generics and any updates there? Thank you.

So, in terms of stocking orders for Inderal LA, there really were none. It's not a product that has a lot of sales associated with it. And the product since we acquired it has always remained in the original label from the company that we acquired it from. It will not move into our own label until approximately the second quarter of next year. So there were no stocking orders. You mentioned a question in regards to run rate for our branded products, and we have not publicly given guidance associated with our run rate for our branded products separate from our annual guidance, so all of that is baked into our annual guidance. But we’ll be more than happy to speak with you and Louise offline to listen to what your numbers are and just to make sure that they’re in line with our syncing. EPS on sequential basis, we also do not guide to earnings per share on a quarterly basis. But I think we’ve given you enough transparency in this press release to sake of argument to do some simple math in regards to EBITDA. We have $15 million approximately for this quarter and we are launching in second half of the year, both nilutamide in the anti-infective product that I mentioned we feel could generate approximately $20 million in combined EBITDA annual basis. So I think you have let’s say the ammunition to take a look at our sequential run rates for the quarter. In terms of your question regarding pricing environment, since we are the -- Company has launched seven products in the second quarter, we are probably adding to pricing declines associated with those product launches as we essentially offer economic savings to customer base in order to capture our target market share for those products. Overall, we have seen, from my perspective, I would just say a return to normalcy associated with generic pricing. Generic pricing I’ve been in the business for over 30 years and generics has always been a competitive environment. It’s always been to the victory go to spoils in other words sense of urgency as many new product introductions as possible, hitting development timelines, all lend themselves to bringing products to the marketplace and then being able to capture market share. I think there is a return to that thinking, and I would say that the days of egregious price increases in generic certainly are in whole behind us. And so, it's really going to come down to what the generic business has always been about execution to develop manufacturing timelines, product launches, and being nimble enough to capture share within a concentrated group of customers that we sell to.

Your next question comes from Elliot Wilbur of Raymond James.

This is David on for Elliot. Thanks for taking the questions. May be just a few for Art and then maybe another one and two for either you or Steve, so first, could we get an update on the launches of HPC and nilutamide. For nilutamide have you seen or expect to see an authorized generic? And then maybe for HPC, could you maybe talk a little bit about the targeting strategy and what kind of ramp do you think is reasonable for the product? And then secondly, are you still confident in the obtainment of the near-term EBITDA goal of $100 million run rate? And then any additional thoughts on when you might be able to achieve that, and maybe what some of the key drivers are behind the expected increase in EBITDA versus prior expectations given that revenue guidance was unchanged?

So let me try to take if I remember all of these points. So, we do not, at this point in time, expect and authorize generic for nilutamide, it's again a very small unit product. Our launch expectations for the product have gone as planned you know per our modeling that we did for the product. We have contracts established with most of the major players for the product and so we expect to see a large portion of the product and sales and market share move to our generic version. In terms of the EBITDA run rate of short term objective of a 100 million, you know we certainly have them in our sights, we've not guided to when we expect let’s say get to $25 million a quarter in EBITDA, we'll provide as we always do when we announce our fourth quarter results for this year, what our guidance is for 2017 and that will probably provide a better expectation associated with that short term objective. What were your other two points David.

Yes, sorry, I know there were quite a few. There's one on the ramp of HPC.

HPC, so HPC we won't be guiding to initially, there's a process that is in place to allow the product to blow itself out and eventually achieve its expected run rate, but until we get to a point where sales are at a more mature run rate we really won't be speaking too much about what that is because quite frankly we don't know at this particular point in time what the eventual run rates for that product will be. There's a certainly a groundswell of interest in terms of both Medicaid and private payers associated with this product. They have to go through their processes that will allow them to purchase the product, and we're going to let them do that, then we'll see where the product sales settle at on HPC in the future.

Got it, thank you.

You're welcome.

Your next question comes from Scott Henry of Roth Capital.

Thank you, just a couple of questions, I guess for starters, EEMT, can you give us any sense of what the revenues for EEMT were in 2Q and how should we think about that product from a run rate perspective, you know is 32 million a good number or maybe a little bit higher than that.

Scott EEMT is the one product that we have consistently provided you know revenue updates on, we typically will not do that on singular products but rather lump them into our brand and in our generic product categories. I can tell you that EEMT revenues are at a run rate of $30 million so for us in the second quarter EEMT revenues were representative of 25% of our overall revenues, our contracts on the product are set and our market share is stable and so what you have on that particular product year over year some declining scripts, but you should model the product at approximately a $30 million run rate for rest of the year.

Okay, thank you, that's helpful and then the revenue guidance is still 15 million in width, could you talk about maybe what the swing factors are, for the second half of the year that's reasonable large range just trying to get an idea of what could swing that one direction or the other.

Well, we have four quarters of the seven products that we launched, from the second quarter in the back half of the year. We obviously will have the upside to the nilutamide launch that occurred in early July, we'll have the upside to the anti-infective launch that we expect to generate a full quarter worth of revenues in the fourth quarter, so these are two big products for us, obviously we did not launch nilutamide in the second quarter as we anticipated, we also see as I mentioned continued upside from some of the products we launched in the second quarter, so you know we obviously feel very good about our revenue guidance throughout the rest of this year moving into 2017, there are some products that we did not guide to as I mentioned, HPC and we certainly didn't guide to the undisclosed additional product that we intend to launch in the fourth quarter with Aspen that we're partnered with. So we'll see how the revenues roll out over the course of the year but we're very confident in our guidance range.

Okay and with regards to cost of goods, I think you were guiding to 35% in 2016 are you still guiding to 35% and does that include the kind of the 2.1 million one-time cost.

Steve you want to take that question.

Sure, good morning Scott. In terms of the overall gross margins I think that that previous guidance a year is in the right range. Our -- the cost of goods sold I should say as a percentage of sales is in the right range at that amount and that does include the amortization if you will of that step up Inderal and Propranolol inventory.

Okay, thank you that's helpful. And the final question, when I think about the trajectory for the second half of '16, your comments seem to be that the Q4 will be more indicative of the EBITDA potential going into '17. So it would seem reasonable to imply that you would expect an upward trajectory in EBITDA over second half of '16, is that a reasonable assumption.

Absolutely, we've forecasted sequential growth in rest of the EBITDA throughout the entire course of 2016 and we feel that the fourth quarter revenue and EBITDA number again will be you know very representative of us moving forward into 2017 and the reason is simple. All of our major products are expected to be launched, so that's going to be in the anti-infective at the end of September, so you'll have a full quarter run rate, you'll have a much better understanding by that point in time in regards to the HPC product which we have not guided to and obviously all these other product launches, the seven plus nilutamide you know will be fully baked into our numbers in our representative market shares associated with those product launches by the fourth quarter of this year. So the fourth quarter is a, in my opinion a very good indication as to what '17 will look like not including additional product launches moving into '17 which we will speak about in subsequent quarters.

Okay, great, thank you for taking all of the questions.

You're welcome Scott.

[Operator Instructions] Your next question comes from Rohit Vanjani of Oppenheimer.

Morning, thanks for taking the questions, just want to confirm is [roacetimine] in the guidance now.

[Salomin] yes which the authorized generic for roaca is in the guidance.

Okay, and then for HPC could you confirm that neither you nor Aspen is allowed to detail that product and if so what is the plan there to kind of make doctors aware of the product.

Well I think number one we certainly can confirm that we can detail the product for its indication, but we are not a company that has a detail sales team needless to say. So we can market and sell the product on its clinical indications as allowed by law. And our plan to create awareness associated with the product is associated with payers and Medicaid, the states that would be very interested in potentially purchasing the product.

And then for [corcatrovan] I think you said you would announce when you sign an API agreement and when you have a meeting with the FDA. Do you have any idea when that meeting will happen now and then…

We continue to guide everybody on [corcatrophin] to a large extent, we are very silent on our development efforts associated with this product and we intend to remain silent associated with how we advance that product and so I would continue to guide everybody to those statements.

And then, do you know how many indications Merck had for that product when it was on the market.

Merck never had the product on the market, the last product that was on the market from the NDA we acquired was through a company called Organa in the mid 90s, Sharing Cloud purchased the product and then Merck purchased that NDA from Sharing Cloud, neither of those two companies had ever relaunched the product. The indications for the product are on our website, there is a slide presentation on our website that shows both our indications and Axar's indications and where the overlap is. We have some indications that Axar doesn't and obviously they have some that we don't such as infantile spasms.

Great, and then for EEMT are you still anticipating this season to leave the market by the end of the year.

We are.

Okay, and then do you think there's an opportunity I know you said generic pricing environment was more rational, but do you think there's an opportunity to raise price there.

I think our opportunity potentially is more in line with us capturing additional market share, the reason I answered your previous question on our expectation that they will leave the market by the end of the year is really the indication that I have associated with that is the fact that their one large contract customer has sent out a bid associated with EEMT and is asking for quotes. So that lends us to believe that that market share potentially will open up because of a lack of supply.

Great, and then the last from me is the IDT products, I know that they shifted from second half '16 to 1Q '17 was there anything fundamental change there or what happened there.

Just a delay in IDT getting us the products which is somewhat disappointing but we're not in control of when they will deliver products to us, so we have certainly helped to understand the sense of urgency associated with hitting timelines but realistically you know it's their assets and when they supply them to us for a launch into the US market is really solely dependent on their efforts.

Great, thanks for taking the questions.

At this time there are no further questions, I will now turn the floor back to Mr. Arthur Przybyl for any additional or closing remarks.

Thank you moderator. In closing I want to reiterate Steve's comments that we have the catalysts in place to achieve our short term objective of a 100 million in annualized EBITDA, that being the full quarter effect of our recent second quarter product launches. The nilutimide launch the anticipated anti-infective product launch, partnered products with IDT and Aspen and continued ANI product pipeline launches. I want to thank all of you for attending our conference call today. Bye bye.

Thank you. This concludes ANI's second quarter 2016 earnings call. You may now disconnect your lines at this time and have a wonderful day.