ANIP
#Good morning, everyone.
Welcome to ANI's Earnings Conference Call for the First Quarter 2018.
My name is Art <UNK>, I am the CEO; and joining me today is <UNK> <UNK>, 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 strong first quarter results: net revenues of $46.5 million, record adjusted non-GAAP EBITDA of $21.8 million and record adjusted non-GAAP diluted earnings per share of $1.32; increases of 27%, 48% and 78%, respectively as compared to the prior year quarter.
First quarter results include the impact of royalties from 4 branded products acquired at the end of 2017 and the positive effects from recent tax reform.
Steve will provide you with our financial highlights during his presentation.
Strategically, we have strengthened our 2 primary business platforms, generic and branded pharmaceutical products, through a series of transactions since last December.
These transactions are designed to increase platform revenues and profits, both in the short and long term, based on the timing of relative product launches.
Specifically, with the close of yesterday's announced transaction, we have launched 3 new generic products, comprising 12 SKUs that will provide us with immediate revenue and profit contribution.
These launches increased our commercialized generic product portfolio to a total of 27 products.
Since the beginning of the year, we have been receiving royalties on 4 branded products that we acquired in December of last year.
For the first quarter, the royalty revenue totaled approximately $5.4 million.
We expect to launch these 4 products in the ANI label in 2018, and that will serve to increase our commercialized brand portfolio to a total of 11 products.
Our pipeline now includes 76 products addressing a total annual market size of $4.7 billion based on data from IMS Health.
Of these 76 products, 71 were acquired, and we believe an environment continues to exist today for future pipeline growth opportunities through continued acquisitions.
We see compelling opportunities in our existing pipeline for 2 generic products, methylphenidate extended-release tablets and aspirin/dipyridamole extended-release capsules, large market products with limited competition.
Both products are approved but require validation efforts prior to launch.
We are very excited about our option for the aspirin/dipyridamole product, which provides us with a date ---+ certain launch date of October 1, 2019, regardless of our own validation effort.
Currently, the product has only one generic competitor and generates annual revenues of approximately $120 million.
Our pipeline also has 2 compelling branded product opportunities, Vancocin oral solution and, of course, Cortrophin gel.
Vancocin oral solution remains on target for us to file a prior approval supplement with the FDA in the second half of this year.
Cortrophin gel and its recommercialization effort continues to progress in cadence with our internal time line.
In the first quarter of 2018, we continued to advance the manufacture of corticotropin active pharmaceutical ingredient, or API.
We ordered and are in the process of installing and qualifying the capital equipment necessary for commercial scale API manufacturing.
We plan to initiate commercial scale API manufacturing in the second quarter of 2018 and are still on track to initiate API process validation and registration batch manufacturing by the end of 2018.
We've continued to manufacture batches of Cortrophin gel drug product and are still on track to manufacture commercial-scaled drug product batches before the end of 2018.
We requested a Type C meeting with the FDA in the fourth quarter of 2017 to provide a regulatory plan for recommercialization of Cortrophin gel.
The FDA granted the meeting and provided an initial response in March 2018 with further communications expected during the second quarter of 2018.
In our press release today, we have included Table 5, Cortrophin Gel Recommercialization Milestone Update, that is intended to provide relevant information and forecasted timing of certain events as we advance to our supplemental NDA regulatory filing.
I will now turn the conference call over to our Chief Financial Officer, <UNK> <UNK>, who will provide you with more details on our financial results.
Thank you, Art.
Good morning to everyone on the line, and thank you for joining the call to discuss ANI's first quarter 2018 financial results.
ANI started 2018 on a strong note, posting record non-GAAP adjusted EBITDA of $21.8 million on $46.5 million of revenue, representing a nearly 47% non-GAAP EBITDA margin.
At $21.8 million, adjusted non-GAAP EBITDA is up $7 million or 48% as compared to the prior year.
GAAP EPS increased $0.09 to $0.19 per diluted share and adjusted non-GAAP diluted earnings per share increased $0.58 or 78% to reach a new company record of $1.32 per diluted share.
Net revenue for the 3 months ended March 31, 2018, was $46.5 million, up $9.9 million or 27% versus prior year driven by strong growth in our brands.
Revenues of our branded pharmaceutical products more than doubled to reach $16.6 million, representing a new record for the portfolio.
This performance was driven by the February 2018 relaunch of InnoPran XL and Inderal XL in the ANI label and continued strength in our Inderal LA franchise.
In addition, we recognized $5.4 million of royalty income in the initial quarter of revenues related to our December 2017 purchase of 4 brand products, Arimidex, Atacand, Atacand HCT and Casodex from AstraZeneca.
These revenues will be recorded as royalty income during the initial phase of the transition of the products from AstraZeneca to ANI.
Revenues of our generic pharmaceutical products declined 13% from prior year to $23.2 million, driven by declines in lower-margin products such as fenofibrate and propranolol ER.
In addition, revenues from our contract manufacturing services were down $848,000, principally due to the timing of the fulfillment of customer orders.
Cost of sales, as recorded on a GAAP basis, includes $5.6 million of costs recorded due to the step-up of basis for finished goods inventory purchased in conjunction with the Inderal XL and InnoPran XL product acquisitions.
Comparatively, the first quarter of 2017 included $1.5 million of such costs.
Excluding these amounts, cost of goods sold represented 32% of net revenues for the first quarter of 2018 as compared to 41% for the prior year period.
This improvement is directly attributable to favorable mix towards brand sales and the impact of royalty income, which has no corresponding cost of sales.
Selling, general and administrative expenses were $9 million as compared to $7.3 million in the prior year, driven by employment and related costs to support the growth of our business as well as increased legal expenses.
SG&A, as a percentage of revenues, decreased from 19.9% in prior year to 19.3% in the first quarter of 2018.
Research and development costs totaled $2.1 million in the quarter, an increase of 30% over prior year driven by continued investment and momentum behind our Cortrophin recommercialization program.
Our effective tax rate for the quarter was 20.8% as compared to 31.2% in the prior year period as it is the first period that we are reporting under the new federal statutory income tax rate of 21% as established in the Tax Cuts and Jobs Act of 2017.
This new rate benefited both our GAAP and adjusted non-GAAP diluted earnings per share metrics in the quarter.
The favorable impact on cash flow will initially be realized in the second quarter in conjunction with the first of our 2018 estimated tax payments.
From a balance sheet perspective, we had unrestricted cash and cash equivalents of nearly $52 million as of March 31, 2018, representing an increase of $20.8 million or 67% from the December 31 balance sheet, driven by $22.9 million of cash flow from operations during the quarter.
We generated free cash flow of $20.6 million, reflective of cash flow from operations, net of $2.3 million of capital expenditures.
This compares favorably to the $4.4 million of free cash flow generated in the first quarter of 2017 and the $12.4 million generated in the fourth quarter of 2017.
During the quarter, we also paid $938,000 in scheduled principal payments against our term loan, leaving a remaining balance of $74.1 million.
Total net debt as of the balance sheet date approximated $166 million, representing 2x net leverage on a trailing 12-month basis and 1.75x utilizing the midpoint of forward-looking 2018 guidance.
The $50 million revolver portion of our senior secured credit facility remains undrawn and continues to provide us with flexibility in pursuing further business development transactions.
In addition, in the beginning of April, we initiated an interest rate swap for the total amount due for the remaining tenor of our term loan.
This instrument synthetically fixes the interest rate we pay on this portion of our debt structure to approximately 4.1% at our current leverage ratios.
Finally, we are reiterating our annual guidance this morning and continue to project net revenues to reach between $212 million and $228 million, representing a 20% to 29% increase over 2017.
We anticipate that these figures will be driven by the ongoing expansion of our brand revenue base, continued execution in maximizing the potential of our currently commercialized generic product portfolio and successful execution of 2018 generic product launches and transition of the recently announced purchase of 3 currently commercialized products from Impax, which will have a greater impact to results in the second half of the year.
In addition, we continue to expect adjusted non-GAAP EBITDA to be between $90 million and $100 million, reflecting 21% to 35% growth over 2017 and adjusted non-GAAP diluted earnings per share to reach between $5.43 and $6.08 per diluted share.
In summary, we are pleased with the start of 2018 and look forward to executing upon our recent business development transactions while we continue to invest in Cortrophin and deliver against our 2018 goals.
We will continue to judiciously utilize our balance sheet to support ongoing business development opportunities in order to further build out our capabilities and drive long-term value to our shareholders and stakeholders.
With this, I will turn the call back to our President and CEO, Art <UNK>.
Thank you, Steve.
Nicole, we will now open the conference call to questions.
So <UNK>, the latter part of your question, the 4 months\xe2\x80\x99 timetable we put for a PAS review is based on a current legislation, current PDUFA legislation.
So that's a placeholder.
It's no different than saying that a generic drug will be approved in 12 months under GDUFA legislation.
So that remains to be determined.
In terms of what the FDA initially opined on, they opined on our ---+ some of the chemistry questions that we had associated with the modernization of the Corticotropin gel drug product.
And there are still discussions ongoing in regards to the bridge necessary to bridge an older product to, let's say, to today's standards.
And so we are awaiting what I would best view or term as an advice letter from the agency regarding that.
We ---+ I think that we ---+ it's too early to answer that question.
So unfortunately, you'll have to wait till perhaps the next earnings call to get more insight, as we are as well, okay.
There are ---+ there have been additional ongoing discussions with the agency telephonically as well as ---+ and then we expect additional written communication.
So it's just too early to answer your question.
Yes, that is correct [statement, yes.
] Those are registration ---+ that's a registration batch that we're intending.
That's correct.
They really are not.
From the standpoint that we, typically, as a company, we don't change our guidance right off the bat.
We wait and see.
We try to understand market conditions for our entire product portfolio.
And so we feel very comfortable with the guidance that we've reaffirmed today, obviously.
But we typically just don't jump the gun and increase or decrease guidance after one quarter, unless there are some market dynamics that would compel us to do that.
So we're going to take a look-see.
And we'll adjust our guidance appropriately as the year progresses.
But I think the one thing we want to avoid is adjusting guidance up or down.
We've seen other pharma companies do it only to get whipsawed in the following quarter because of dynamic market conditions.
So we tend to try to take, <UNK>, as you know, a reasonably conservative approach to our numbers.
Sure.
Specifically, there are 2 products.
So you're looking at a, let's call it, year-over-year decline of 13%.
As Steve called out, there were really 2 products that ---+ they were lower-margin items for us, so it's why our margins improved associated with brand sales generating a kind of increases that they did.
But 2 products in particular.
Fenofibrate.
Fenofibrate is a distribution agreement for us.
We make approximately a little bit north of 7% to distribute the product.
There is no generic for that particular SKU.
And one of the consortiums stopped buying it.
And so that affects our revenues but really doesn't affect our margin in a material way.
And the other product is a product that's just seen price decreases over time.
And that is the generic of our Inderal product called propranolol extended release.
And so again, the margins associated with that product do not tend to affect the overall margins of the business but certainly would affect the revenues generated by the business.
Right.
So why did Amneal/Impax choose ANI as the company to take forward, and this is not your past 3 to 5 years process in gating a company through the Federal Trade Commission, through the FTC.
It is very, very different.
The FTC is, I think, primarily interested in these overlap-type opportunities and making sure that there's not a competitive imbalance.
And so the FTC is very interested in understanding the company's capabilities to successfully transfer a product and, of course, capture relevant market share, okay.
And I think that after the discussions obviously with Amneal/Impax, discussions with the FTC and some of the presentations that we made, they came to understand that, that's the nature of our business.
We've been doing it for several years.
And I believe they felt extremely comfortable with us in terms of being able to accomplish the ---+ and establish the competitive balance on some of these products that the FTC is looking for.
In regards to Amneal/Impax and choosing us as the vendor to go forward with FTC, I think they saw much of the same things.
They saw a potential sense of urgency to get it done.
And bear in mind, they have to choose somebody to take to the finish line or they can't get their merger done, the business combination done.
So all of those factors led to what we see as a really ---+ this is a really great deal for ANI.
I mean, I think the deal maybe to many people sounds too good to be true.
We got equipment, we got consulting.
We got technical resources.
We got 3 products to launch right away, and we've got several products that represent significant opportunities.
And so maybe it does sound too good to be true, but it was a deal that was borne out of our capabilities to get it done, okay.
And certainly, it's a tremendous deal for ANI.
I can't understate that.
The opportunity here, the return on this just from the 3 generic products that are launched, certainly completely overshadows the monies paid.
And on top of that, you have this additional opportunity.
So we're very excited about this deal.
And I think, you can't understate the fact that regardless of the 2 big products that require validation efforts, aspirin/dipyridamole and methylphenidate ER, you can't understate the fact that we are launching aspirin/dipyridamole October 1, 2019, into a one-player market that is generating realistically net sales, not IMS Health, but net sales of $120 million.
That is a ---+ that's not to say other people might not launch before us, but it is to say that, that's going to be a high-margin, less-competitive market when we launch that product October 1.
So first and foremost, that is probably the midterm opportunity that should not be overlooked.
Now your second part of your question, <UNK>, is associated with methylphenidate ER.
And we have a fair amount of resources available to us to get that product validated and on the market.
And I don't want to go into that much detail just yet.
But as that unfolds, you can rest assured that we'll be talking about that opportunity over time.
I just want to thank everybody for, again, joining and listening to ANI's First Quarter 2018 Earnings Conference Call.
Wish you all a good day.
Thank you very much.
Bye-bye.
Thank you.
