ANI Pharmaceuticals, Inc. (ANIP) Q4 2021 Earnings Report, Transcript and Summary

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 across primary indications receive ACTH therapy. The ACTH market in 2021 was approximately $600 million in revenues, reflecting the significant impact of the COVID-19 pandemic on the only competitor in the class. The alleviation of the COVID impact is visible in the growth seen in the ACTH market between Q3 and Q4 of 2021. The reintroduction of Cortrophin Gel for select indications gives prescribers another ACTH therapy, which can mean a greater chance for an effective treatment for some patients. As we share more about the Cortrophin Gel launch, please bear in mind that we have held back information to not reveal our plans to our competitor. We have invested significantly in building a world-class rare disease team and the infrastructure needed to drive a successful launch. Our rare disease leadership team, led by Chris Mutz, has experienced over 20 rare disease product launches. Recent additions to the leadership team include Dr. Mary Pao as Chief Medical Officer; and Elizabeth Powell as Chief Compliance Officer and Head of Legal. Our winning sales force will be approximately 50-person strong and led by their inspirational leader, Holly Zickler. Our clinical account executives have an average of over 12 years of successful sales experience in the rare disease and specialty areas, including with leading rare disease-focused biopharmaceutical companies such as Alexion, Horizon, Alnylam and Gilead. Nearly 75% of the sales team has won a President's Club or equivalent top 10 sales award in recent years. In preparation for launch, this experienced team went through comprehensive clinical and product training to fully prepare them to hit the ground running on day 1 of launch. We have also in place strong functional teams, including medical, marketing, market access, commercial operations, analytics, finance and compliance. In addition, we have secured the U.S.-based distribution footprint and supply chain. Cortrophin Gel is now available through a network of specialty pharmacies and distributors for appropriate patients, health care providers and submit a prescription and initiate access to treatment to a specialty pharmacy by visiting www.cortrophin.com. We've also established and updated our manufacturing processes and ensured a sustainable U.S.-based supply for key starting materials, API and finished goods. ANI is committed to supporting meaningful patient access to Cortrophin Gel and to bringing a more affordable ACTH therapy to government and commercial payer plans, prescribers and patients. We are very encouraged by our ongoing conversations with payers as well as the pharmacy benefit managers, or PBMs. As part of our commitment to establishing meaningful access to Cortrophin Gel, we've created Cortrophin In Your Corner, a dedicated program for patients and their caregivers throughout the treatment journey that includes one-on-one access, reimbursement support, financial assistance for eligible patients and nurse-provided injection training. Cortrophin In Your Corner also provides access and reimbursement support for health care professionals and their staff. Finally, we are very pleased with the early physician response we have seen for Cortrophin. It's perfect timing as most physicians are ready for in-person visits. We're confident that seeing the strong weekly trend for prescriptions and new patient case initiations continues to accelerate over the past 6 weeks as our sales force is meeting with physicians in our initial focus specialty areas. Overall, the Cortrophin Gel launch is off to a very good start, and we continue to expect Cortrophin Gel to be a significant growth driver with commercial longevity. While we are not yet ready to provide specific Cortrophin guidance in this early-stage launch, we are encouraged by the early traction we are seeing. Turning now to the second pillar of our growth strategy, to strengthen our generics business with enhanced R&D capabilities and increased focus on niche opportunities. In November, we completed our acquisition of Novitium Pharma, bringing a high-performance R&D engine to ANI. The R&D engine continues to deliver with 8 new product launches since deal closure and 5 new ANDA filings already in 2022. Today, ANI has over 30 ANDA files pending with the FDA and over 25 applications and multiple 505(b)(2) products under development. Equally important, ANI's R&D engine strengthened its track record of bringing limited competition products to the market with the largest number of competitive generic therapy, CGT, approvals. Most recently, ANI received CGT designation and the associated -- most recently, ANI received CGT designation and the associated 180 days of exclusivity for the launch of betaine anhydrous solution in addition to receiving approval of our first 505(b)(2) product. Our R&D efforts across New Jersey [indiscernible] are now fully integrated under the leadership of Samy Shanmugam, along with Chad Gassert, who leads our portfolio strategy and corporate development functions, we are focused on increasing the productivity of our R&D teams and strengthening our product pipeline to bring much-needed quality affordable medications to patients in need and to increase the sustainability of our generics business with new product launches. As you would expect, we had in place a clearly defined 100-day integration plan across key functions such as commercial, HR, operations, quality, supply chain and finance. Our teams continue to execute well against these plans, with a dual focus on ensuring continuity of business operation and capturing synergies from the combination. The 8 new product launches, consistently high service levels and positive feedback from our customers highlight the effectiveness of our integration. Our synergy capture efforts cover procurement savings, distribution and operational efficiencies and enhanced R&D productivity, as mentioned earlier. Overall, the Novitium Pharma acquisition is off to a great start. The third pillar of our growth strategy is to maximize value from established brands through innovative commercialization strategies and strong business development, which has been a long-standing strength of ANI. In 2021, we successfully acquired and integrated 4 dermatology brands from Sandoz. We continue to evaluate accretive asset acquisition deals in this area and further augment our unique commercial and organizational capabilities. The fourth pillar of our growth strategy is to expand our CDMO business, leveraging our North America manufacturing footprint and certain unique manufacturing capabilities. Several of our customers here are facing the pricing headwinds from increased competition. We continue to explore opportunities with the addition of the Novitium site in New Jersey and new customers that Novitium serve bring. I'd like to close by sharing 3 elements of ANI's strong foundation that enables us to deliver sustainable growth and become a leading biopharmaceutical company serving patients in need. First, ANI's new capital structure comprised of the recently completed $75 million equity raise and the closure of the new $300 million Term Loan B, $40 million revolver and $25 million pipe gives the company significant flexibility in ensuring a strong Purified Cortrophin Gel commercial launch, supporting the integration of Novitium into ANI and propel the next phase of growth for ANI. Second, we have in place high-performing leadership and teams with a nest of experience and expertise across our diversified businesses. Finally, we're cultivating an ANI united culture to serve our patients and physicians in need by continuing to identify patient populations that are underserved and medicines that can help them. Now Steve will provide the details behind our Q4 2021 financials. Steve?

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 million revolving credit facility. The new debt was utilized to fully repay $200.1 million of Term loan A debt and to partially finance the Novitium acquisition. The new Term Loan B bears interest at LIBOR plus 6%, with a 75 basis point LIBOR floor. In addition, we issued approximately 2.5 million restricted shares of common stock to selling shareholders of Novitium. These shares contain restrictions on their post-close transfer ranging from 3 to 24 months following the completion of the acquisition. Lastly, we placed a $25 million of Series A convertible preferred stock to Ampersand Capital in a PIPE transaction. The preferred shares accrued dividends at a rate of 6.5% per year and are payable either in cash or in kind. These shares are recorded as mezzanine equity on our December 31, 2021, balance sheet. In November, we placed $75 million of common stock in a secondary public offering, resulting in the issuance of 1.5 million common shares and net cash proceeds of $69.7 million after cost of issuance. The culmination of these activities and financing efforts resulted in $100.3 million of unrestricted cash on our balance sheet as of December 31. This balance, along with our $40 million revolving credit facility, which remains undrawn, places us in a strong position to support the Cortrophin launch, fund the integration of Novitium and allow the company to explore product-level tuck-in acquisitions during the course of 2022. Now we will turn to fourth quarter financial results. Despite ongoing industry headwinds, including significant generic price pressure, ANI has continued to grow through incremental revenues from the Novitium acquisition, with net revenues for the fourth quarter of 2021 of $60.9 million as compared to $57.3 million posted in the fourth quarter of 2020 or a 6% increase. Novitium contributed $7.7 million of net revenues during the initial 41 days of the consolidation of results. Net revenues for generic pharmaceutical products were $41.6 million during the 3 months ended December 31, 2021, an increase of 8% compared to $38.7 million for the same period in 2020. The net increase was primarily due to the November 19 acquisition of Novitium and the third quarter 2021 launch of Nebivolol, tempered by sales declines for Tolterodine and Vancomycin and a decrease in the average selling price of generic products. Net revenues for branded pharmaceutical products were $14.7 million during the 3 months ended December 31, 2021, a decrease of 7% compared to $15.8 million for the same period in 2020. The change was a result of fewer units sold of Arimidex and Inderal XL, partially offset by the second quarter 2021 launch of brand products acquired from Sandoz. Contract manufacturing revenues were $2.8 million during the 3 months ended December 31, 2021, an increase of 26% compared to $2.2 million for the same period in 2020, partially due to Novitium-related CDMO gains. Operating expenses on a GAAP basis increased by 49% to $84.7 million for the 3 months ended December 31, 2021, up from $56.9 million for the prior year period. Cost of sales, excluding depreciation and amortization, increased by $9.4 million, with $33.9 million in the fourth quarter of 2021 compared to $24.5 million in the prior year period, primarily as a result of increased volumes. The increase also includes a charge of $3.7 million to recognize the excess of fair value over cost for assets acquired as part of the Novitium transaction and a $1.9 million litigation settlement, which was recorded to royalty expense. These items were partially offset by a $1.6 million of decrease related to sales of products subject to profit-sharing arrangements. Excluding stock compensation and these impacts on a non-GAAP basis, cost of sales as a percentage of revenues was 46.2% compared to 42.6% on a like basis for the fourth quarter of 2020. The 3.6 point reduction in margin is principally the result of price compression in our generic product offerings and negative mix. Research and development expenses declined from $3.7 million to $3.1 million, a decrease of 15% primarily due to the timing of generic R&D projects and the completion of the R&D phase of the Cortrophin recommercialization project. Selling, general and administrative expenses increased by $16.3 million in the fourth quarter of 2021 to $30.7 million compared to $14.4 million in the comparable quarter in 2020. The increase primarily reflects $4.3 million of transaction expenses related to the Novitium acquisition, $9.2 million in sales and marketing expenses related to Cortrophin prelaunch activities and increased head count costs, including those associated with Novitium subsequent to the acquisition. Depreciation and amortization expenses were $13.7 million for the 3 months ended December 31, 2021, an increase of $2.8 million compared to the same period in 2020. The increase is primarily a result of the initial amortization of intangible assets acquired in the Novitium transaction. Adjusted non-GAAP EBITDA for the fourth quarter was $16.2 million compared to $17.2 million for the fourth quarter of 2020, a decrease of 5.8%. Our adjusted non-GAAP diluted earnings per share was $0.54 for the quarter compared to $0.80 for the fourth quarter of 2020. It is worth highlighting that fourth quarter non-GAAP EPS metrics reflect 14.2 million diluted shares, representing a partial quarter of additional shares outstanding related to the Novitium acquisition and the fourth quarter equity raise. During the year, we generated $3.3 million of cash flow from operations. And as of December 31, we had $100.3 million of unrestricted cash and cash equivalents. Cash flow from operations during 2021 was constricted by approximately $10.5 million of cash-settled Cortrophin prelaunch activities, $9.4 million of Novitium transaction costs and $8.4 million of cash settled litigation settlements. These items were tempered by approximately $13 million of cash collected in the second quarter related to the final Yescarta-related royalties. Total net debt utilizing the face value of debt, net of our cash on hand as of December 31, was $199.7 million, an increase of $12 million from September 30, 2021, driven by incremental debt incurred with the Novitium acquisition as tempered by the additional cash on the balance sheet, principally resulting from the public equity raise. Net leverage was 3.1 turns on a trailing 12-month basis as of the balance sheet date. Now turning our attention to forward-looking guidance. For the projected 12 months ended December 31, 2022, ANI is providing guidance on x Cortrophin net revenue and x Cortrophin adjusted non-GAAP EBITDA, total company research and development expense and Cortrophin-specific SG&A. The following summarizes 2022 guidance. For total company x Purified Cortrophin Gel, we currently anticipate net revenues of between $260 million and $275 million, representing approximately 20% to 27% growth as compared to 2021; and adjusted non-GAAP EBITDA of between $70 million and $75 million, representing 8% to 16% growth as compared to 2021. On a total company basis, we expect research and development expense of between $16 million and $18 million. And relating specifically to Purified Cortrophin Gel, we anticipate direct selling, general and administrative expenses of between $42 million and $46 million. In addition, we currently project between 16.9 million and 17.3 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. With that, we'll now open up the call for questions. Operator, please go ahead with the instructions.

[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.