Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. Fourth Quarter 2021 Earnings Results Call. [Operator Instructions] Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Judy DiClemente.

Thank you, Britney. Welcome to ANI Pharmaceuticals' Q4 2021 Earnings Results Call. This is Judy DiClemente of In-Site Communications, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; and Stephen Carey, Chief Financial Officer of ANI. You can also access the webcast of this call through the Investors section of the ANI website at www.anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements, as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI Pharmaceuticals' management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 15, 2022. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Nikhil Lalwani. Nikhil?

Thank you, Judy. Good morning, everyone, and thank you for joining the ANI Pharmaceuticals call today and for your interest in our company. I hope you, your families, friends and colleagues continue to stay safe and well. I'll start with commenting on the overall 2021 performance. In 2021, ANI delivered revenues of $216.1 million and adjusted non-GAAP EBITDA of $64.8 million. Our adjusted non-GAAP diluted earnings per share of $0.54 reflects the increased number of shares outstanding. During this period, we continued to face increased competitive intensity and resulting pricing pressures in the generic side of our business as well as the impact of COVID on prescriptions for both the established brands and generics businesses. I am proud and appreciative of the hard work of all of our employees, customers, partners and suppliers as we continue to deliver high-quality medications to patients in need. In 2021, we also achieved important goals against the key pillars of our growth strategy to drive ANI past an inflection point in our evolution towards becoming a leading biopharmaceutical company. First, on January 24, 2022, we announced the full-scale commercial launch of the lead asset of our rare disease business, Purified Cortrophin Gel. Bringing Cortrophin Gel to market was a victory for ANI and, more importantly, for patients, as Cortrophin Gel has the potential to help patients with certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis and excess urinary protein due to nephrotic syndrome. These patients are forced to cope with a devastating disease on a daily basis. Multiple evidence-based treatment guidelines indicate that corticotropin, or ACTH, may be considered for patients who require additional treatment beyond standard of care, which often includes steroids. A claims-based epidemiology analysis suggests that less than 10% of patients who are steroid-resistant and refractory…

Thank you, Nikhil, and good morning to everyone on the call. As Nikhil just mentioned, the company completed numerous strategic initiatives in the fourth quarter of 2021, most notably, the FDA approval of Cortrophin, the close of our acquisition of Novitium, the corresponding refinancing of our debt structure and a secondary public equity raise. These events have had significant impacts on our fourth quarter financial statements. On October 29, we received FDA approval for our purified Cortrophin Gel product. In response, we proceeded with the final prelaunch spend necessary to fully build out our rare disease sales and marketing team. During the fourth quarter, we finalized marketing plans and field force materials, rounded out recruitment of key home office personnel and fast-tracked recruitment of our clinical account executives in advance of our January 24, 2022, full-scale launch. These efforts resulted in $9.2 million of Cortrophin-specific fourth quarter spend, which has continued to be added back to our non-GAAP metrics as prelaunch expenditures. Beginning in the first quarter of 2022, we will reflect the full Cortrophin SG&A spend in our non-GAAP metrics. On November 19, we closed our acquisition of Novitium. And as such, Novitium's results for the final 41 days of the year are reflected in our consolidated results. Our preliminary purchase price allocation is reflected in our December 31, 2021, balance sheet and reflects GAAP fair market value of consideration of $206.2 million, intangible assets of $139.2 million and goodwill of $24.3 million. We incurred approximately $9.4 million of transaction costs, which were expensed as incurred and are reflected in SG&A in our GAAP financial statements and have been added back for our non-GAAP measures. In conjunction with the close, we refinanced our previous Term Loan A credit agreement with a $300 million term loan B and a $40…

[Operator Instructions]. And we will take our first question from Brandon Folkes with Cantor Fitzgerald.

Maybe just two from me. I guess -- I know that you may not be willing to answer this at this stage, but I guess, on the Cortrophin launch in 1Q, are you willing to just talk about where you are seeing initial reception there? . And then maybe just on Novitium. Can you just remind us in terms of what you said about that acquisition being accretive, should we think of it being accretive in 2022? Just I see you've recorded a net loss of $1.4 million from close to December 31. So just any way how to think about Novitium being accretive in 2022 and its impact on operating cash flow going forward?

Yes. Thanks, Brandon. Good to hear from you. Steve, why don't I take the first question and then you can take -- tackle the second? Sounds good?

Sounds good.

All right. So regarding early traction of Cortrophin, as you rightfully pointed out, we want to be thoughtful about what we share given our competitors. The early stage of our launch, and our competitor may be listening, and so what we're willing to say at this point is, look, it's been perfect timing for us as most physicians are ready for in-person visits. . We're seeing a strong weekly trend for prescriptions and growth week-on-week and new patient case initiations. And so while we are not yet ready to provide specific Cortrophin guidance in this early stage of launch, we're very encouraged by the early traction we're seeing. Steve?

Thanks, Brandon, and good morning. Yes, so on Novitium. Novitium is generating a modest growth overall for our overall brand -- I'm sorry, our overall generic business. However, right, our base business, we do expect to have continued pricing erosion. So as we've talked a lot about in the past, on the generic side of the house, right, it's a game of having our generic launches outpace the erosion in our generic-based business. And so we do see our generic business posting growth in 2022. In the overall guidance, however, remember that on the established brand business, that you would continue to have erosion in that portfolio. And as typical and consistent with past practices, our guidance does not reflect any assumptions around business development. And as I said in my prepared comments, right, ANI does expect, now that Novitium is closed, we do expect to continue to look for product-level tuck-in acquisitions as we've done historically in the past. And so in the guidance that's reflected, we do have reductions on the brand, the x Cortrophin side of the house. So I think that's what you're seeing in the overall guidance. And a comment, I think -- yes, Brandon, last point. And as I was speaking to my prepared comments, right, on the expense side, I think you alluded to GAAP net loss in the fourth quarter. There's obviously, in the fourth quarter, a very significant amount of transaction-related expenses, whether it relates to the Novitium transaction, the debt refinancing and the equity raise. And so I would point everyone to the press release and the tables to the press release, where, we not only have the reconciliation to get to the non-GAAP EBITDA metrics, but we also provide a reconciliation for some of the key functional expense areas. And so particularly on the SG&A side, I would point you to those non-GAAP reconciliations.

And if I can just follow up there. I just -- I'm talking about Novitium operations, in particular. Just looking in the K here, I think they recorded a net loss of $1.4 million for that sort of 1.5 months. Should we factor those?

Yes, if -- you're picking that up from the pro forma disclosures in the K, yes, Brandon?

Correct. Just ahead of the pro forma, yes.

Yes. And so in that...

And Novitium generates 7.7...

Right. In that GAAP footnote disclosure, that's done on -- inclusive of all of the purchase accounting adjustments and overlays that GAAP has -- you do in business combinations, so that would have amortization of intangibles, inventory step-up assumptions, et cetera. And so yes, so that's on a fully baked GAAP basis.

Okay. That's very helpful. Can I just sneak in one more, coming back to Acthar, I mean, Cortrophin, I beg your pardon. But on the Acthar market, your competitor did put out numbers this morning. And Nikhil, you did touch on this, that decline, and you mentioned you are seeing it reverse. Any way you can help us frame how you're thinking about the Cortrophin market in general in terms of how much it could reverse in 2022 given, hopefully, with COVID lifting?

Yes. Look, at this point, I think a couple of things -- a couple of data points to share. I think you -- I think we all know what the ACTH market was in, in 2020, I believe it was $770 million-ish, right? So that's one data point. You also know that this is in the public domain that the only other player has taken a price increase recently for this product. And that the other data points that I shared, right, the claims-based epidemiology analysis suggested that less than 10% of patients who are steroid-resistant and refractory across primary indications receive ACTH therapy. So I think just those 3 data points, we're willing to share at this point. And that's what drives our understanding of the tremendous opportunity in this product and to benefit patients in need.

We will take our next question from Greg Fraser with Truist Securities.

Following up on the comments on the generics business, can you provide some color on how you're thinking about price erosion for the base business in 2022? And can you also comment on how much erosion you saw in Q4 for the base business?

Sure, Greg. So I'll take the first part, and I'll let Steve chime in for the second. Look, as many of the larger players have reported earlier, I think that we see the erosion in our base business to be in the high single digits, low double digits. Obviously, it varies. There is increased competitive intensity, as you have heard a lot about, more approvals for products that already have 3 to 4 players. We're counting on the portfolio that we've -- and the pipeline that we have from the Novitium acquisition from ANI New Jersey to sort of bounce and drive growth and achieve growth from these new launches. So that's where I would sort of orient you in terms of erosion. Regarding Q4, Steve?

Yes, Greg. Yes, in Q4 actuals, we experienced base generic erosion in the low double-digit range prior to product launches. So our fourth quarter experience is essentially in line with the planning assumptions for '22.

Got it. Okay. And then on the SG&A spend for Cortrophin, how much of that is temporary launch spend that will wind down over time? Or should we think about that $42 million to $46 million as a base level of spend that you'll ramp up necessary to drive demand as the product grows?

Yes. No, good question. So look, as mentioned before, we'll limit what we're sharing to not hand over important information. As far as our spend of $42 million to $46 million, just to give you a bit more color, first major spend bucket, obviously, is people a bit more and have to spend this on the people. We can divide this into two groups. We have an almost 50% strong sales team. As we mentioned earlier, our clinical account executives are highly experienced in rare disease, over 12 years of experience from the leading rare disease companies such as Horizon, Alexion, Alnylam and Gilead. 75% of them have won President's Club or equivalent in recent years. So please factor that in your understanding, as if you think of cost to company per rare disease sales rep. So that's one. In addition, we've had to bolster organizational infrastructure in key areas such as marketing, medical, market access, compliance, operations and analytics. And then to your point, there's also a significant spend on commercial and operational infrastructure, some of which is a setup expense, as a lot of this we've had to build from scratch. These include infrastructure and system for the sales team, including Veeva, the CoverMyMeds hub, other operational and data and analytics systems and services. Finally, there are other key areas of OpEx that are typical for a rare disease launch across marketing, medical, compliance, et cetera. Again, we prefer to steer clear of the specifics of these -- of our programs and the mix, but that hopefully gives you a bit of color on the SG&A. And I guess, overall, directionally, I think that this would be the ballpark. Of course, as we expand our coverage, you can see that increasing, but not significantly. I think this would be in the range of what we are planning for year-on-year, going after the indications that we currently are pursuing. So we hope to see, I guess -- sorry, Greg, just one last thought. So we will see the leverage in the years going forward, right? So yes.

Yes. Understood. On payer coverage, you made some comments. Curious where coverage stands? If you can comment on that in terms of covered lives and how you expect coverage to evolve this year. If you have a target for covered lives by year-end, just any additional color there would be helpful.

Yes. Greg, as you're aware, this is an important and critical area. And we -- we're having -- we're committed to supporting meaningful patient access and to bring this more affordable ACTH therapy to both government and commercial payer plans, prescribers and patients. We are in ongoing discussions and are encouraged by the discussions we're having with payers as well as the pharmacy benefit managers, or PBMs. And we look forward to sharing more details in the future.

And we will take our next question from Elliot Wilbur with Raymond James.

First question or questions for Steve. Getting a lot of inbounds in terms of clients asking us to help sort of bridge the gap between EBITDA run rates, top line run rates exiting 3Q and 4Q and the initial 2022 guidance. And the simple question is this. When the Novitium deal closed, you guys talked about a pro forma EBITDA run rate for the first 9 months of around $66 million, which would work out to about almost $90 million on an annualized basis. And then the full year guide for 2022 is $70 million to $75 million. I'm having a little bit of difficulty bridging those 2 numbers, even allowing for step-up in erosion in the base business. So can you just sort of help reconcile those two numbers for me and think about what some of the various moving parts may be?

Yes. Sure thing, Elliot. So just to refine the back-of-the-envelope math that you've done, on a pro forma basis, the company is producing about $86 million of EBITDA. And if I look at the fourth quarter run rate and kind of do the times format, right, that I think many of your clients are probably doing, it really comes down to the couple of factors that we've discussed. One is continued pricing erosion in the generic space. The environment is absolutely tougher today than roughly this time last year when we announced the Novitium transaction. So that pricing impact on the company's plan and the results and the guidance is more significant. And then, again, just the continued erosion in the established brands business. Those two factors together, right, when you have -- they combine for a pretty significant negative mix -- negative price and negative mix because the generic business is growing and the established brand business is declining. And so we're seeing meaningful compressions in the gross margin percentages. That really is the bulk of the story. On the expense side of the equation, when I look at the fourth quarter pro forma run rates compared to guidance, we're essentially projecting relatively flat spend, both in SG&A and R&D. So it really is that gross profit effect on the EBITDA line.

And just to build on what Steve said that with the full year number, I think there was nonrecurring events in 2021, which is the Yescarta royalty and certain nonrecurring milestones for Novitium CDMO business that were substantial, and that's what's reflected in the overall full year number.

Right. So if you -- yes, great point, Nikhil. If you adjust for those items, Elliot, the combined pro forma business would be in the low 70s for EBITDA generation for '21.

Okay. So not -- not the mid high 80s, right, mid-70s?

Yes. So remember, in the $86 million, right, remember the ANI in the fourth -- in the first quarter of last year had $11 million pickup from the final Yescarta royalty closeout. So that takes $86 million to $75 million. And then in the Novitium portfolio, remember, they have a bit more of CDMO arrangements that are more focused on the development side of the equation as the base ANI CDMO, which is kind of more plain vanilla manufacturing portion. So in the Novitium portfolio, when you look at quarterly performance, there can be a little bit of chunkiness in terms of milestone achievement and certain triggers for revenue on their CDMO side of the house. So if you were to adjust for a couple of those events, you would take that $75 million down into the low 70s, probably 72-ish.

Okay. Understood. I guess I just wasn't making those adjustments. The follow-up question, with respect to Cortrophin and formulary placement and initial coverage, I understand that this is still kind of in the early stages here, Nikhil. But maybe you could just help us think a little bit about your expectations in terms of formulary placement. I mean, you're starting to see various coverage policies appear. And honestly, they're kind of all over the place. I mean, we're seeing Cortrophin placed on Tier 3 with prior authorization required similar to Acthar. And then we've seen it all the way down to where it's actually bumped Acthar from formulary altogether. Or where the payers are requiring step-through therapy with Cortrophin before patients can eventually get on Acthar, assuming that they do, which, obviously, is quite favorable for you guys. But I'm just -- I'm trying to think about like where -- as all these coverage policies evolved and enter the public domain, like sort of what's a reasonable expectation, I guess, in terms of where you expect the majority of coverage to kind of fall for Cortrophin?

Yes. Thank you, Elliot. Look, we are committed to supporting meaningful patient access that's reflected in the more affordable ACTH therapy that were -- that we've brought to both government and commercial payer plans. And as I said before, we're very encouraged by the ongoing conversations. I prefer to steer clear of the details, but I understand the ask, and I look forward to sharing more about the specifics of lives covered, what formulary status have we achieved and giving you more specifics in future conversations.

Okay. And then just maybe last question in terms of -- just a quick clarification question. So with respect to first quarter 2022 financials, fair to assume that you'll recognize revenue for all Cortrophin shipments into the distribution channel?

Yes, Elliot, that's correct.

That's correct.

Yes.

We have no further questions on the line at this time. I will turn the program back over to Nikhil for any additional or closing remarks.

Yes. Thank you. So thank you, everyone, for joining us on the call this morning. We appreciate your support as we move forward on our path of bringing high-quality medicines to the patients who need them and delivering shareholder value. While 2021 was a momentous year for ANI, it's only the beginning. Thanks again, and stay well.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.