Good day, everyone, and welcome to the ANI Pharmaceuticals, Inc. Third Quarter 2023 Earnings Results Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question-and-answer session. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] At this time, it is my pleasure to turn the conference over to Judy DiClemente with Investor Relations for ANI. Please go ahead.

Thank you, Jamie. Welcome to ANI Pharmaceuticals third quarter 2023 earnings results call. This is Judy DiClemente of Insight 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. 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 November 8, 2023. 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 third quarter earnings call, and thank you for your interest in ANI Pharmaceuticals. First, I would like to express tremendous gratitude to our customers, suppliers and investors for their strong support of our ANI team and our Board as we work tirelessly to fulfill our purpose of serving patients, improving lives. Our time-tested values of teamwork, innovation, integrity, compliance, accountability commitment to excellence and always putting the patient first, guide us every day as we keep striving for starting patients, improving lives. Turning now to our business performance for the third quarter. Steve and I will share the details of our financial results, the momentum we've built across key business segments and our overall confidence in the company's ability to drive sustainable, profitable growth. I'm delighted to share that clarity of our strategy and very strong execution has enabled ANI to deliver another record quarter for revenue and adjusted non-GAAP EBITDA. This record quarterly performance also allowed us to raise full year 2023 guidance for the third quarter in a row. This morning, we reported record net quarterly revenues of $131.8 million, an increase of 57% over the third quarter of 2022, and up 13% over the record we achieved last quarter. Equally impressive, our adjusted non-GAAP EBITDA was $36.5 million, a 98% year-over-year increase and our adjusted non-GAAP diluted EPS was $1.27, representing nearly 118% increase over the third quarter of 2022. These results and the Q4 outlook for all segments have allowed us to once again raise our full year 2023 guidance. We now expect net revenues to be in the range of $468 million to $478 million, adjusted non-GAAP EBITDA to be between $128 million and $133 million, and adjusted non-GAAP earnings per…

Thank you, Nikhil, and good morning to everyone on the call. As Nikhil indicated, we posted very strong results in the third quarter of 2023. We saw growth across our core businesses, generating record third quarter revenues of $131.8 million. This represents $48 million or 57% growth over the $83.8 million reported in the third quarter of 2022 and a 13% sequential increase from the $116.5 million of revenues reported in the second quarter, which had been the company's previous record. Revenues from Cortrophin reported in our Rare Disease segment, were $29.7 million in the quarter, up 136% from the prior year. Revenues of our Generic, Established Brands and Other segment rose $30.9 million to $102.1 million, an increase of 43% over the prior year. Net revenue gains across the segment reflect increased volumes on the base business, annualization of 2022 launches and new product launches in 2023. From a product perspective, performance was driven by revenues from year-over-year gains in products such as Colestipol, Famotidine, Mixed Amphetamine Salts Extended Release, Nitrofurantoin and Thyroid, tempered by a decrease in revenues of Fenofibrate, Nebivolol, and Prazosin, among others. As Nikhil mentioned earlier, our strong commitment to U.S.-based manufacturing and excellence in generic R&D, procurement and sales and marketing have enabled ANI to meet market demand for key products in the face of competitive supply chain issues throughout the first 3 quarters of this year. The market conditions for specific molecules have changed recently. And as a result, we currently expect fourth quarter established brand revenues to be significantly lower than that that we are reporting this morning for the third quarter of 2023. We do expect to see ongoing sequential growth in generic revenues; however, it will be tempered by declines in certain molecules. Importantly, the steps we have taken to…

[Operator Instructions] We'll take our first question from Les Sulewski with Truist Securities.

First, I want to start off on the generics front. It seems to be that there's a shift in tone in gravitation towards a little bit of a weakness that you're seeing. Can you just talk a little bit about that, which categories essentially? And a follow-up to that is, what is the reasoning behind the expansion and the manufacturing footprint given the softness in the market? Or maybe it's a little bit exaggerated. Just give you a little more color, if you can.

Sure. I think first on the softness, look, the softness is, that we've spoken to is with regards to the very specifically to opportunities that arose from specific product level opportunities that arose from supply chain disruptions, right? Remember, we had spoken about several structural factors such as product-specific issues, manufacturing, site-related issues arising from FDA audit outcomes and company-specific financial issues, all of these for our competitors because that resulted in opportunities for us. So when we're talking about softening, we're specifically speaking to specific across multiple products across generic and established brands softening of these product level opportunities. Now the mix of current opportunities, new opportunities and return of opportunities that have gone away is very dynamic and evolving. Therefore, we focus our guidance on sort of overall company numbers, right? And going to your second question, which is -- so the softening again is related to specific supply chain disruption-related opportunities that came up. As Steve mentioned in his remarks and so that I that we continue to believe in the growth of the generic business and the expansion at the New Jersey site is to support that growth and multiyear growth, right? So this is the addition of additional capacity is in the New Jersey site to support the next 2, 3 years' worth of growth based on products that we have in our portfolio, opportunities, so that's new existing products, opportunities in our pipeline that the new products that we're going to bring to the market. So it's supporting that growth.

Nikhil, that's helpful. Perhaps I'll reframe the question in another way. Are you seeing market weakness? Or are you seeing more of just the supply chain essentially kind of resolving and stabilizing?

So you're seeing specific resolution of certain supply chain-related disruptions. We still think that the macro trends that give rise to the supply chain disruptions, which is the product-specific issues, manufacturing site-related issues, the company-specific financial issues, all of these are persisting. So the market macro trend is persisting. We're seeing that specific opportunities that we had related to these trends are softening. Some of those are softening is what we're speaking towards. Yes. So we're not talking about overall market weakness, weakness at all. Of course, you've heard from many of our competitors in the generic space, and I think you've seen the strength in what they are reporting. So...

I have, yes. And that is helpful. Okay. Just moving on. On the consumption side, so the 1 ml dosage, is there a difference in shelf life? And would you see a prescribing this off-label? And what essentially is the appeal to prescribers? And what's the kind of potential opportunity for this dosage?

Yes. Look, the launch of the 1 mL bio size and the commercial availability of that is for the adjunctive treatment of certain patients with acute gouty arthritis flares. And recently, the company received a specific J-Code for Cortrophin to support physician administration of the 1 mL. So the 1 mL vial is for acute gouty arthritis and certain patients for adjunctive treatment of certain patients with the acute gouty arthritis flares. While we received positive initial physician response, we're very early into this launch, we would love to share more in -- at the next earnings or as the launch evolves.

Got it. Okay. And just to go back to generics briefly. On the 3Q results, was the impact driven primarily by seasonality, I'd say, of the strength, some sort of perhaps inventory stocking or just product channel mix? And then how do you envision essentially given what we discussed earlier, the '24 to kind of shape out.

Yes. I think the generics' Q3 performance is driven by a combination of new product launches, opportunities from the supply chain disruptions and continued strong performance with our base business. So it's there's -- you asked the question around seasonality. We don't believe that from the product portfolio we have, there's a seasonality impact on that. And then as far as 2024 those look, we're working through many moving parts, and we'll plan on releasing our 2024 financial guidance on our year-end earnings call, which will occur towards the end of February. But we continue to, as you would have seen, even in the R&D expense, we continue to invest in R&D for the generics business to support the future growth. And that growth will come from new product launches cost competitiveness and supply chain reliability.

We'll take our next question from Vamil Divan with Guggenheim Securities.

So a couple of questions for me. First on the Cortrophin side. I know you mentioned, talked about the 1 mL. And I'm curious about the gouty arthritis opportunity in particular, and that is sort of a unique one for you. Can you maybe just quantify, I guess, initially any sort of feedback or kind of doctor interest in that indication, but also does quantify what you see as a potential opportunity in that specific indication? And then my second question is going back to some of the comments around the sort of softness that you're seeing, I mean the main thing is really rather frankly 2024, and I know you're not going to give guidance until in February. But if I look at things right now, based on where you're planning to leave 2023, it looks like the sort of consensus number you are assuming very minimal sales growth for next year. And EPS is actually sort of below where you leave this year. So I'm just wondering if you can provide any color at all on how we should think about sort of trajectory for the different businesses for next year at this point, understanding that you will give more detail a few months from now, but it does seem like there's a pretty big disconnect from the trajectory of the business and where consensus numbers are right now for next year?

All right. I think, first, your question around gout, like many of our other indications, right, multiple sclerosis, rheumatoid arthritis, et cetera, we're focused on patients for whom current treatments are not sufficient. In the case of gout flares, there are patients -- acute gouty arthritis flares, there are patients who might benefit from an additional option from the other therapeutics that are available. We have received positive initial physician response at this so far. It's not something that we can we're able to quantify at this point, or and again, as we've done consistently, we try to find a balance between sharing information to assist the investment community why not giving away competitively sensitive data. So please stay tuned and we will come back on -- to share more about the gout launch. You should know that we have assumed no material revenues from out in the 2023 guidance. So I think that could be a point or just to -- because it's early days in the launch. And then going back to your question -- your second question around the 2024 and how that links to the 2023 guidance. I mean, Bob and you've been working with us long enough to know that we -- as we've done consistently, we deliver what we commit to, and this is the continuation of that philosophy of being more conservative while giving guidance. And in terms of 2024, we do see continued evolution of the PCG launch, right, ongoing strong execution in our tax business. You've also talked about the efforts that we're making to leverage the PCG launch as our anchor asset in rare disease and build on that through -- and the multiple moving parts, right? Even the supply chain disruptions, right, as I've spoken about, there are opportunities that we've had. Some of them have gone away. There are new ones that are in the bucket or current months that are persisting. So there are many moving parts that we're working through, Cortrophin evolution, strong Cortrophin evolution, the rare disease M&A, the generics growth and the status of the supply chain disruptions. And we plan on releasing our 2024 financial guidance as we move forward.

Okay. Maybe just 1 quick follow-up, just again on the sort of commentary around the softening in specific markets you're seeing, would you say is that more on the Generic side or more Established Brands? Is there any way to just sort of give us a little bit of directional sense on where you might be seeing more of the impact?

Sure. So we are seeing impact across products, both in Generics and in Established Brands. In Generics, some of the -- as Steve mentioned in his remarks, the growth that we're seeing from the other products and the new launches is tempering some of that decline. So in the Q4 numbers, you will see the impact more on the established brand side than you will on the generics side.

We'll take our next question from Oren Livnat with H.C. Wainright.

If I could just, I guess, approach the same discussion from a little bit different perspective. Obviously, you've raised guidance dramatically from the beginning of the year from initial guidance, I think, about $100 million and 9% EPS raise, mostly from the generics. When you issue guidance, I guess, how conservative are you being? How are you looking at the world with regards to all these disruptions and opportunities you have? Do you have to -- do you have much visibility on these looking forward? Or do you assume the ones that you already have in hand will end shortly looking forward to be extremely conservative in your guidance, I guess? What I'm asking is it's not surprising that some of the opportunities you've experienced this year are rolling off, right? They don't last forever. But when you give first-time guidance next year or when you have given guidance each quarter of this year, what are you assuming for the durability of those opportunities? And do you build in really anything for expected new disruptions to benefit -- benefit disrupting to come your way? I have a follow-up.

Sure, and thank you for your question. Look at -- I think we've spoken about this, which is that when we speak to guidance or when we've given guidance, we obviously bake in the performance of the previous quarter and then assume that with the many moving parts, our best understanding of what subset of those opportunities will continue in the subsequent quarter -- quarters, right? And we have some understanding, right? If there's a site related issue, it takes time to resolve those. If there's a product level specific technical issue with 1 player in a 5-player market, then we know that, that could be shorter. So we bake in that understanding as we're giving guidance. And I think to use worse that Steve has used before, and he's describing these -- there's always more in the previous periods when we were doing we're not assuming that these will persist forever, and that's why we baked that in as we give guidance. And of course, as we learn more, we try to share that and continue our philosophy of saying what we'll deliver and deliver what we're saying.

Okay. And I think I appreciate you -- look, I misheard you, you said the biggest quarter-over-quarter change in Q4 should be on the branded side. we're not used to seeing the legacy brands rising similar disruptions, I guess, on the brand side, like we do in generics of products coming and going. Can you comment on whether the tailwinds you've had this year have been mostly a volume or a price benefit? And to the extent that, that's moderating going forward, is that due to pricing dynamics, if it's priced? Is that due to dynamic softening in general whether that's because of payers and contracting, et cetera? Or is it purely a supply and demand issue as products lead the market come back, price adjust accordingly?

Yes. No, thank you for that question, Oren. It's all volume related or in large portion relates to volume. It's not driven by pricing. So I think there's the second part of your question. .

Yes. And can you comment on generics, I guess, portfolio pricing trends in general. I mean, historically, we've gotten commentary from other players about double-digit year-over-year declines or not. Is that something you can comment across your portfolio?

Yes. I think it's much like the larger players in their commentary, we have seen some improvement in the degree of generic pricing decline. And yes. I think that versus what it was in past periods, we've seen some improvement. These are not separated from the macro trend of supply chain disruptions. And as our customers, like their #1 objective is to ensure that product is available for their patients. And as they solve for that, there is lesser of a pricing decline pricing erosion on base products than we've seen in the past.

All right. That's encouraging. And then just last on the generics business. Are you able to comment on, I guess, concentration of your portfolio? I think historically, you've had a pretty a pretty well-diversified portfolio. It's not enormous, is spread pretty well. Can you talk about how that's changed this year with some of these benefits? Are there any one, two or a handful of products that are have driven outsized gains? And what's maybe single or handful of revenue percentage in your portfolio now?

Yes. I think that the diversification of our product portfolio across the generics business persists. We have multiple products in the generics business that have seen benefits from the supply chain disruptions. And not one has -- there are different scales of it, but there are multiple products that have seen the benefit. And I'll let Steve sort of jump in with -- is there a specific product that is -- I don't think so that is disproportionately large of our overall generic business. I think it's still top 10%. But Steve, you can just clarify?

That's correct, Nikhil, on the generic side of the portfolio, the company has, throughout the years, rates driven to diversify the generics. And at this moment in time, I would say we have quite a diverse portfolio. And no single product taking any lion's share of the generics portfolio.

All right. And just lastly, the rare disease business has been outperforming as well. I don't want to only focus on generics. Can you talk about the investment there? I think once upon a time you told us you expected this year to have approximately 10% year-over-year spend -- direct spend on that business. Is it safe to assume that you've been investing more behind that than originally and because of outperformance? And is that necessary to support the demand? Or are you actually investing more to drive more demand now and going forward?

Yes. Thank you, Oren. No, I think that our we have invested from an SG&A perspective in line with in mind with the numbers that you mentioned, which is 10%-ish year-on year-over-year increase.

At this time, as we have no questions standing by. I will turn the conference back over to Nikhil Lalwani for any additional or closing comments.

Thank you, everyone, for joining our call this morning. We believe that our efforts during 2023 have created a strong foundation for continued success and fulfilling our purpose of serving patients improving lives. We look forward to updating you on our progress. We appreciate your time and interest in ANI. Thank you. .

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may disconnect at this time.