Earnings Call Transcript - ANIP Q4 2022

Operator, Operator

Good morning, everyone, and my name is Ashley, and I'll be your conference operator. At this time, I'd like to welcome everyone to ANI Pharmaceuticals' Fourth Quarter and Full Year 2022 financial results. As a reminder, this conference call is being recorded today, March 9, 2023. It is now my pleasure to turn the floor over to Ms. Judy DiClemente, Investor Relations for ANI Pharmaceuticals. Please go ahead.

Judy DiClemente, Investor Relations

Thank you, Ashley. Welcome to ANI Pharmaceuticals' Q4 2022 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 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. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 9, 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?

Nikhil Lalwani, CEO

Thank you, Judy. Good morning, everyone, and thank you for joining our call. 2022 was a landmark year for ANI, taking us past critical inflection points for our two critical growth drivers. Our Rare Disease business with the successful launch of our foundational asset, Purified Cortrophin Gel, and our Generics business through the acquisition and integration of Novitium, a best-in-class generics R&D organization. The significant achievements of 2022 further strengthen ANI to deliver sustainable, competitive and profitable growth. We keep the patient at the center of everything we do and remain deeply committed to providing high-quality medicines to patients in need. I'm proud to report that for the full year 2022, ANI revenues totaled $316.4 million, surpassing the $300 million mark for the first time in the company's history. This was an increase of over $100 million and 46% year-over-year. In the fourth quarter, revenues grew by nearly 55% to $94.2 million, a company record for quarterly revenues. We delivered remarkable growth in adjusted non-GAAP EBITDA from $4.3 million in the first quarter of 2022 to $23.3 million in the fourth quarter. Let me now turn to the two strategic imperatives that we need to remain focused on to drive sustainable, profitable and competitive growth in 2023 and beyond. The first imperative is scaling up our Rare Disease business. Our foundational asset, Purified Cortrophin Gel, has experienced great momentum through the first year of launch. As you would expect, we made tweaks in our strategy as the launch unfolded. We are pleased to report that the fourth quarter sales totaled $17.6 million, and for our first year of launch, total sales were $41.7 million. Importantly, according to IQVIA, the ACTH class of therapy has gone from consistent year-on-year declines to year-over-year unit growth for the first time since 2019. From June 2022 to January 2023, the ACTH category has seen eight consecutive months of year-on-year growth. As of March 8, cumulative new patient cases initiated increased to more than 1,120 with more than 510 unique prescribers. We are pleased that we have continued to see growth in the number of new unique prescribers and an increasing number of healthcare providers becoming repeat prescribers. Overall, we have seen prescriber interest in having an alternate treatment in the ACTH category continue to build. Many of our prescribers had previously slowed or discontinued use of the ACTH class and have restarted their use of ACTH therapy after the launch of Purified Cortrophin Gel. Prescriptions continue to be distributed across our targeted specialties, which include certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis in rheumatoid arthritis and excess urinary protein given the nephrotic syndrome. We have actively participated in the key national and regional medical conferences and have also initiated peer-to-peer programs across these specialties to educate physicians, to increase awareness and understanding of Cortrophin Gel. Our peer-to-peer education programs have been well received with positive early feedback. We have invested and are continuing our efforts with the PBMs and payers across commercial, Medicaid and Medicare to expand market access for Cortrophin for the appropriate patients in need. In addition, we have further strengthened our patient services and reimbursement teams to support access to Cortrophin Gel and reduce the time taken from enrollment to fulfillment. In parallel, we have taken several initiatives to increase the effectiveness of our highly experienced sales force. In 2023, we will augment these efforts with enhanced data to improve prescriber targeting. With the momentum from our launch, we will also commence modest expansion of our sales force to focus on pulmonology. Looking ahead, and as Steve will discuss shortly in more detail, we expect 2023 revenue from Cortrophin Gel to be in the $80 million to $90 million range, and the Cortrophin SGA increase to be estimated at approximately 10%. We believe that ANI has built a Rare Disease platform successfully encompassing medical affairs, patient support, market access and specialty pharmacy distribution. The success of our foundational asset, Purified Cortrophin Gel, has given the company confidence and we are actively exploring assets to acquire or partner on to leverage the platform and scale of the Rare Disease business. Before I move on to our Generics business, I would like to share an important point. During the early days of the launch, we believe it was important to share detailed metrics to give investors insight into the dynamics of and progress of our launch. As the Cortrophin launch has gathered momentum, and investors have gained further confidence, we have decided to pare back sharing competitively sensitive detailed metrics such as the number of prescribers and patient cases initiated. Moving now to our second strategic imperative, driving Generic business growth to superior new product launch execution, cost excellence and supply reliability. Sales of our generic pharmaceutical products grew 46% year-on-year. We launched several limited-competition new generics and retained a top 10 ranking in terms of ANDA approvals. In addition, ANI continues to retain the second ranking for competitive generic therapy approvals. This is especially impressive given the scale of our Generics business and a large number of companies that compete in the U.S. Generics market. In 2022, we filed 12 ANDAs and expect to continue investing in generics R&D to support our growth aspirations. We are also making large strides in the area of cost excellence. The consolidation of our manufacturing network is on track. Manufacturing operations speed at the Oakville Ontario site in January 2023 and the relocation of Oakville products to U.S. facilities have been completed. We are in active discussions with potential buyers for the Oakville site. And once fully executed, this operational efficiency is expected to improve GAAP profitability and cash flow by $7 million to $8 million on an annualized basis. Looking ahead, we have augmented our analytical and development facility in Chennai, India. The facility completed a successful FDA audit with the FDA in 2022. And today, over 60 skilled colleagues at the facility contribute materially to ANI's efforts to serving patients in need. Over the years, ANI has built a strong reputation as a reliable supplier to patients and customers. We have invested in maintaining healthy inventory levels, both for materials and finished goods. All of our manufacturing facilities are in the U.S. and our domestic supply chain further enhances our reliability as a supplier. Finally, the strong compliance and audit history across our facilities exemplifies our efforts to deliver high-quality medicines. Most recently, during the fourth quarter, the FDA conducted a routine good manufacturing practices audit at our facility in Baudette, Minnesota. We have implemented all corrective and preventive actions needed and we have already received a favorable establishment inspection report or EIR, classifying that our Baudette facility is Voluntary Action Indicated, VAI. I am proud of the dedicated work of our employees and our Generics business with over 20 million prescriptions filled using ANI medicines. In summary, 2022 was a landmark year for ANI, taking us past a critical inflection point for the key driver of ANI's growth, scaling up our Rare Disease business. In 2023, we look forward to building on the launch momentum of Cortrophin Gel and acquiring or partnering on other assets that leverage our Rare Disease platform. Steve will now walk through our detailed fourth quarter financial results and discuss our guidance for the coming year. Steve?

Stephen Carey, CFO

Thank you, Nikhil, and good morning to everyone on the call. My comments this morning will be focused on the three months ended December 31, 2022 versus the prior year, unless otherwise noted. First off, as Nikhil indicated, 2022 has been a transformational year as we successfully operationalized the Purified Cortrophin Gel launch and integrated the November 2021 acquisition of Novitium into our overall operation. These two platforms for growth drove ANI's full year revenue to $316.4 million, marking the first time in ANI's history that our full year revenue has surpassed $300 million. This represents $100 million or 46% growth over the $216.1 million reported in 2021 and establishes a new base as the company continues its growth trajectory. This full year achievement was built upon strong sequential quarterly growth accumulating in $94.2 million of revenues for the three months ending December 31, 2022, up $33.3 million or 54.7% as compared to the prior year period, driven by strong gains in both of our operating segments. Revenues from Purified Cortrophin Gel led the way with $17.6 million in revenues in the quarter. Revenues of our Generics established brands and other segments were up $15.7 million or 25.8% over the prior year, driven by gains in our generic pharmaceutical product line, which was up $16.4 million or 39% year-over-year. This increase was principally driven by revenues from multiple 2022 new product launches and partially tempered by an increase in revenues from sales of several legacy ANI generic products. Contract manufacturing revenues were $4 million during the fourth quarter of 2022, up 45.9% from the $2.8 million posted in the prior year period, primarily related to the addition of Novitium contract manufacturing revenues. Royalty and other revenues were $1.9 million in the current year quarter in line with prior year levels. Tempering these growth drivers were net revenues for established brand pharmaceutical products at $12.7 million during the three months ended December 31, 2022. This represents a decrease of 13.3% compared to the $14.7 million for the same period in 2021, driven by lower aggregate unit volumes across the portfolio. Operating expenses increased by approximately 9.2% to $92.4 million for the three months ended December 31, 2022, from $84.7 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $2.4 million to $36.3 million in the fourth quarter of 2022 compared to $33.9 million in the prior year period, primarily due to increased sales volumes of generic products and sales of Purified Cortrophin Gel. Excluding the impact of acquisition accounting, stock compensation, and the effects of our Oakville Ontario plant closure, all of which are detailed in the tables contained in this morning's press release. Cost of sales on a non-GAAP basis as a percentage of total net revenues decreased 7.3 points from 45.7% in the fourth quarter of 2021 to 38.4% in the current year period, primarily as a result of favorable mix from the impact of sales of Purified Cortrophin Gel coupled with the impact of new product launches in our Generic franchise. These favorable impacts were partially offset by lower sales of established brand products in the period. Research and development expenses were $5.2 million in the fourth quarter of 2022, an increase of $2.1 million from prior year, primarily due to expenses related to an increased level of generic research and development activities during the current year period. Selling, general and administrative expenses increased by 8.1% to $33.2 million in the fourth quarter of 2022 compared to $30.7 million in the prior year quarter, primarily due to a $3.9 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, a full quarter's worth of Novitium headcount and activities as compared to a partial quarter in the prior year and increased infrastructure to support the growth in our business. These effects were partially offset by a $4.3 million decrease in transaction expenses related to the Novitium acquisition. Depreciation and amortization expense was $14.5 million for the three months ended December 31, 2022, compared to $13.7 million for the same period in 2021, an increase of $0.8 million, primarily due to the amortization of intangible assets acquired in the Novitium acquisition. We recognized $1.6 million of restructuring expense in the fourth quarter of 2022 associated with the closure of our Oakville, Ontario facility. Costs included $0.3 million in termination benefits and $1.1 million in fixed asset accelerated depreciation. No restructuring activities were recognized in the prior year period. We have excluded both the onetime charges resulting from this action as well as the portions of the Canada results that are expected to be nonrecurring post closure from our non-GAAP financial measures as detailed in the tables in this morning's press release. During the quarter ended December 31, 2022, we also recognized the noncash fair value adjustment of $1.6 million related to the contingent consideration recorded in conjunction with Novitium purchase accounting. Our $0.28 GAAP net loss per share for the quarter reflects significant amortization and purchase accounting-related charges from the Novitium acquisition coupled with the sales and marketing expense behind our initial commercial launch of Cortrophin and Oakville-related restructuring activities. On an adjusted non-GAAP basis, we had diluted earnings per share of $0.76 for the quarter compared to $0.06 in the prior year period. Adjusted non-GAAP EBITDA for the fourth quarter of 2022 of $23.3 million, more than tripled as compared to the $7.2 million posted in the fourth quarter of 2021. And on a sequential basis, was up $4.9 million from $18.4 million in the third quarter of this year. Also, please note, as disclosed in the footnote to Tables 3 and 4 to this morning's press release, beginning in the fourth quarter of 2022, ANI no longer excludes expense for in-process research and development, Cortrophin prelaunch charges and Cortrophin sales and marketing expenses from its non-GAAP results. Historically, the company excluded these charges. These changes have been made to align with views expressed by the U.S. Securities and Exchange Commission. Prior periods have been recast to reflect these changes. From a balance sheet perspective, we exited the year with $48.2 million in unrestricted cash and cash equivalents and $297 million in face value of outstanding debt which is due in November of 2027. As expected, full year 2022 was a heavy cash utilization year with $31.2 million of cash used in operations as we invested behind the Rare Disease platform and had significant build of working capital due to rapidly accelerating sequential net revenues. Finally, with this morning's press release, we are instituting 2023 guidance. Total company net revenue between $360 million and $385 million, representing approximately at least 14% to 22% growth as compared to $316.4 million recognized in 2022. Cortrophin specific revenue guidance of between $80 million to $90 million, representing 92% to 116% growth as compared to $41.7 million recognized in 2022. Total company non-GAAP gross margin between 59.5% and 61%. Total company adjusted non-GAAP EBITDA between $78 million and $88 million and adjusted non-GAAP diluted earnings per share between $2.09 and $2.59. In addition, we currently anticipate between 16.8 million and 17.1 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. We will now open up the call to questions. Operator, please announce the instruction.

Operator, Operator

We will now take our first question from Elliot Wilbur with Raymond James.

Elliot Wilbur, Analyst

First question for Nikhil and Steve as well, I guess. Just thinking about expectations with respect to the base business, generics legacy brands, backing out the numbers, it looks like you're expecting growth in mid-to-high single digits. And just wondering what the assumptions are as far as new approvals, new launches, should we be expecting a similar pattern to what we've seen over the past 12 months where we kind of see a steady cadence of smaller products coming out of the legacy Novitium pipeline? And is there anything that you could offer up in terms of visibility around any date certain or larger launch opportunities that might enhance confidence in your modest growth expectations for that component of the business?

Nikhil Lalwani, CEO

Sure. Thank you, Elliot, and good morning. I believe the launch schedule for 2023 will resemble that of 2022, with a consistent flow of launches. Over time, we expect the scale of these launches to increase. However, concerning your other question, there isn't a specific date or significant launch to highlight. While there are some relatively larger launches planned, none stand out as being significantly larger than the others. In terms of new product launch revenues, we don't anticipate a concentration. This has not been included as an assumption in our guidance for the base business, our overhead, or our overall guidance.

Stephen Carey, CFO

Yes. The other thing I would add, Nikhil and Elliot, as we look and unpack the different elements that roll up into that segment, I would say we're expecting the growth in that segment to be led by the Generic platform and to decline year-over-year in the established brands side of the business and the contract manufacturing side of the business. So there's a little bit of mix rolling up into that segment observation that you made.

Elliot Wilbur, Analyst

Okay. I have a couple of quick financial questions for you, Steve. Can you share anything specific about the expected increase in SG&A and R&D expenditures? It appears that most of this is aimed at the expansion of Cortrophin call activities, but any additional details would be appreciated. Additionally, you mentioned working capital investment throughout 2022. Based on your adjusted net income projections, it looks like you're anticipating around $40 million to $45 million in adjusted net income. Can you provide any insights regarding the expected cash conversion ratio? I assume you might anticipate exceeding a 100% cash conversion, but I wanted to check with you on your expectations for cash conversion and operating cash flow generation in 2023.

Stephen Carey, CFO

Certainly. While we aren't providing specific guidance for SG&A and R&D today, it's clear that both of these areas will see growth compared to last year. We will continue to invest more in our R&D platform, particularly focusing on Generics, where we've made substantial investments in the Novitium platform, which has shown strong performance in 2022. Our goal is to keep building and expanding on that. In terms of SG&A, we expect around a 10% year-over-year increase, driven largely by ongoing investments in the Rare Disease platform and the second year of the Purified Cortrophin Gel launch, as noted by Nikhil. As the company grows rapidly, the support functions must also expand to adequately support our objectives. Throughout 2022, we've seen an annualization effect from decisions made, with additional costs as we anticipate ongoing growth in our two platforms. Regarding cash flow, we expect to return to positive cash flows in 2023 after a year of cash use during the establishment of the Rare Disease business. In 2022, we saw a significant increase in revenues from our Rare Disease business, growing from $1 million in the first quarter to over $17 million in the fourth. We expect Cortrophin to reach breakeven, leading to favorable cash flows for the entire company in 2023. While I won't specify against your $45 million operational assumption, I do anticipate strong cash flows in 2023, building off that foundation.

Elliot Wilbur, Analyst

Okay. And just one last question around Cortrophin. Nikhil, is the expansion of the sales force specifically targeted towards the pulmonologist community or what also enables you to enhance the frequency or expand the breadth of your current calling pattern? And historically, I seem to recall the pulmonology indication accounting for roughly 15% to 20% of the dollar value of the Acthar franchise. And I just wanted to see if that's sort of consistent with your read into that particular segment of the market as well.

Nikhil Lalwani, CEO

Thank you, Elliot. Regarding your question on sales expansion, we are trying to strike a balance between providing information that helps the investment community and protecting sensitive competitive data. With that in mind, pulmonology is a key focus for our expansion, but we might extend our efforts beyond that area as well. For sharing information, pulmonology is the primary segment we're willing to discuss. As for the percentage of Acthar sales it represents, it is significant enough for us to establish a dedicated sales force for that sector and work towards reaching more patients.

Operator, Operator

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

Vamil Divan, Analyst

Great. So maybe just a couple more following up on the Cortrophin launch. And I appreciate your comments on not wanting to share too much competitive information. But a couple of questions just following up on what you did say. Can you maybe just comment a little bit on what you're seeing sort of in the field if physicians are sort of deciding between Cortrophin Gel and competing options, nice to see the growth return to that market, but in terms of differentiation, what is sort of driving the decision to use Cortrophin? And then just the second one, again, as much as you're willing to share kind of baked in your guidance or any comments on what you're assuming around gross to net would be helpful just for us if you want to comment.

Nikhil Lalwani, CEO

Good morning, Vamil, and welcome to your first ANI earnings call. Two questions on the gross to net, we are again, back to the competitive point, we're not sharing that information at this time. And then in terms of dynamics with prescribers, look, we are continuing to see growth both in the number of unique prescribers or new unique prescribers as well as healthcare providers becoming repeat prescribers. They use it, they see the benefit and then they use it. And then the other thing to share is that we've seen the prescriber interest in having an alternate treatment in the ACTH category continue to build. And many of our prescribers had previously slowed or discontinued the use of the ACTH class prior to our launch. And then once we've launched and as we created awareness around Cortrophin Gel and the ACTH class, they've restarted their use of ACTH therapy. Of course, this is for the appropriate patients in need. And when you think of that, right, and this is why the point on the class and the growth in the class eight months ago according to IQVIA year-on-year growth on a monthly basis. I think as you think of that, I think the important point to bear in mind is that if you look a few years ago, the number of patients that were benefiting from ACTH therapy was significantly higher than where we are today. And so that tells you that, again, as we're seeing this class growth that, that is necessary that the prescriber interest in ACTH class and more appropriate patients continue to build.

Operator, Operator

And we'll take our next question from Greg Fraser with Truist Securities.

Gregory Fraser, Analyst

On Cortrophin, can you comment on the competitive environment? I'm not sure if I missed that. And just what you're seeing from the incumbent in terms of strategies to defend this business?

Nikhil Lalwani, CEO

Yes, let's get straight to the point, Greg. We are trying to find a balance between sharing helpful information with the investment community and protecting competitively sensitive data. We know our competitors are listening to this call. From our perspective, they recently publicly commented that they are seeing stabilization in demand and overall growth in the class. They believe, as do we, that our focus should be on increasing the number of appropriate patients who can benefit from this therapy. That's what I feel comfortable sharing at this time.

Gregory Fraser, Analyst

Got it. This may be sensitive information, but can you discuss the number of prescribers versus the overall total?

Nikhil Lalwani, CEO

Yes. Definitely competitively sensitive information. So we'll be steering clear of that. Thank you for understanding.

Gregory Fraser, Analyst

Great. Understood. Okay. What about the new patient starts? Have those been increasing similarly to the case initiations, and are the payer approvals coming through?

Nikhil Lalwani, CEO

The new patient starts are increasing. In 2023, we expect that new patient starts in the fourth quarter will continue to grow, depending on the indications they are prescribed. The refill vials will continue to come from these new starts. Our team is focused on enhancing the awareness and understanding of Cortrophin Gel. There are several factors that influence the number of initiated cases, including those meeting prior authorization criteria, approval by insurance plans, and the time it takes to dispense the first vial. Additionally, the mix of indications varies, such as the number of patients with multiple sclerosis compared to rheumatoid arthritis, lupus, or nephrotic syndrome, and the quantity of vials used for each indication. Patients also receive vials through our patient assistance program.

Gregory Fraser, Analyst

When do you expect the operational efficiencies from the consolidation of the manufacturing network to fully materialize?

Stephen Carey, CFO

I can grab that one. Greg, thanks for the insightful questions. Yes, the full GAAP impact and most importantly, the cash flow impact from consolidating manufacturing and closing of the Oakville facility, we'll start to accrue into the results in 2023. Our operational plans to wind down the facility have tracked very much according to plan, and we are in the final days of manufacturing completed early this quarter, and we're in the process of moving and selling off certain fixed assets, et cetera. So we're in the final days of the wind down plan as we speak. So that cash flow impact will start to accrue in 2023, and certainly GAAP results on the P&L, we'll accrue in. As you know, Greg, on the non-GAAP results, in the non-GAAP EBITDA and non-GAAP EPS, we've been adding back certain portions of those savings, the impact of nonrecurring costs on the CDMO side in Canada, we've been adding those back since the second quarter of 2022. So a portion of that impact in effect is already reflected in the non-GAAP results.

Nikhil Lalwani, CEO

Just before we move on, Greg, I'd like to address your question regarding competitive dynamics to assist the investment community. According to IQVIA, we have experienced year-over-year growth in the class for eight consecutive months. That's one data point. Additionally, the relative market share provides another piece of information that's publicly available, along with the implications of short claims, which offers yet another data point. Finally, the published price is also a significant indicator. All of these are data points accessible in the public domain that can help illustrate the competitive landscape. Overall, it's important to note that the number of patients on ACTH therapy three to four years ago was much higher than it is today, and we're working to enhance awareness and understanding of Cortrophin Gel to identify the right patients who need it.

Operator, Operator

And we'll take our next question from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes, Analyst

Congratulations on all the progress in 2022. I do just want to come back to the cash flow conversion and generation. So you reported adjusted EBITDA, I think, of $56 million operating cash burn, I think I heard you say, Steve, of $31 million, can you just elaborate on the moving pieces regarding cash flow generation in 2023? I didn't hear you're talking about getting better cash flow generation and strong cash flow generation at that. But just maybe help us bridge that $87 million gap between adjusted EBITDA in 2022 and operating cash flow. Is it really just interest payments and working capital build? And then why should we not expect to continue to see a working capital build in '23 albeit perhaps lower in 2022? But just given the growth trajectory, I wondered your '23 guidance and then maybe what we are expecting for 2024. I know that's a lot in there, but maybe just to tack on top of that then how is your flexibility to bring in additional assets as you finance this organic growth and service the debt?

Stephen Carey, CFO

Thank you, Brandon. The key point you mentioned is the change in working capital. It's important to note that we've experienced significant sequential performance growth, especially when comparing quarterly results. For instance, the company reported $94 million in sales, an increase from $64.5 million in the first quarter of this year. Year-over-year, fourth-quarter revenues increased by $33 million. A substantial part of this sales growth is reflected in accounts receivable. Additionally, on the inventory side, we've seen considerable expansion in the business across both segments. On the Generic side, we've launched over 20 products in 2022, which required an increase in working capital for inventory to support these launches, along with the effects on accounts receivable that we discussed. In terms of Purified Cortrophin Gel, the supply chain is crucial, and inventory production occurs more sporadically due to the product's specialized nature, leading to variability in inventory purchases. These factors are significant when analyzing quarterly trends. If we break down the fourth quarter, particularly for growth platforms, we see ongoing growth throughout the month. Regarding the total company cash flows, the second-largest expense in 2022 was debt financing and servicing, amounting to almost $24 million in interest and $3 million for principal repayment. These were the main factors affecting cash flow in 2022. Looking ahead to 2023, we anticipate continued growth, but we expect the working capital component to be less severe than in this past year.

Nikhil Lalwani, CEO

Just one other thing to add, Brandon, is that we also have the sale of the Oakville facility as a good positive cash flow item to think about.

Operator, Operator

And we'll take our next question from Oren Livnat with H.C. Wainwright.

Oren Livnat, Analyst

I have a couple. On Cortrophin, I understand you have to keep things close to the vest competitively here. But just in general, on approval of coverage trends, are those time lines shrinking materially? And you discussed you're continuing to work to improve coverage and access. So how would you characterize your, I guess, without specifics, but just your relative positioning to Acthar at launch and now and should we expect any material changes in Q1, whether normal seasonal headwinds from resetting of plans in prior offs, et cetera, or actual potential tailwinds with new coverage wins kicking in? And I have a follow-up.

Nikhil Lalwani, CEO

Yes. Thank you for your questions. Yes. Look, again, the specifics on market access and rather coverage positions is fairly competitively sensitive information. I think that, as I mentioned during my prepared remarks, that we're continuing to work to increase and improve the market access for patients in need, both with coverage decisions as well as what's helping to our reimbursement team just helping to reduce the time from enrollment to fulfillment. I should probably steer clear of giving any further specifics beyond that because the last time I checked, individuals were actually listening into my call.

Oren Livnat, Analyst

In terms of seasonality in Q1, we typically expect a challenge for rare expensive drugs. Should we assume that this will be the case for your product, or do you anticipate achieving a breakthrough in your first full year?

Nikhil Lalwani, CEO

So I think you're exactly right that there is a dynamic that's typical for rare disease launches between Q4 and Q1, such as patients searching insurance plans and the impact of that. And I think that ANI's rare disease products will sort of follow suit on that.

Oren Livnat, Analyst

Perfect. And you did mention bolstering the pulmonology support. And I think it's pretty vague, but maybe other areas, I'm assuming you're referring to whatever differentiation you have indication-wise versus Acthar, which I guess is not competitive information. It's in the label. So maybe you could talk about it. How material do you view the opportunity in any differentiated indications you have versus Acthar?

Nikhil Lalwani, CEO

Yes, you are correct. We do have unique indications compared to Acthar, but we cannot disclose any details at this time. Regarding the pulmonology area, I believe we are considering a modest expansion of our sales force there, and I think it's appropriate to mention that.

Oren Livnat, Analyst

Okay. Now, regarding some financial aspects. There is more operating leverage expected in 2023. What are the main factors affecting the margins in both optimistic and pessimistic scenarios? Is it primarily related to your investments in operating expenses, or is there significant variability in the gross margins of the different business units? I also want to check if you provided guidance on the company's gross margin. Specifically for Generics, with the upcoming launch of competitive generic therapies, do you think it's feasible that gross margins in the Generics business could increase in 2023, or would that be too ambitious? Should we expect them to remain stable at best?

Stephen Carey, CFO

Yes, we discussed the company’s gross margin, which is projected to be between 59.5% and 61% on a non-GAAP basis. When considering the various factors affecting this guidance, one important aspect is the sales mix. Purified Cortrophin Gel is a positive contributor to our overall gross margin as it continues to grow. However, there is a slight decline year-over-year in certain revenue categories, particularly in royalties, which I did not mention earlier. We expect royalty income to decrease compared to last year, even though it typically has a 100% gross margin. Additionally, our established brands business, with a strong margin profile, is generally a declining asset each year without any new business development. Therefore, there are various influences on our gross margin guidance. We also have yet to provide guidance on SG&A and R&D, but those expenses fall within relatively narrow ranges. Our priority remains on investing in our two growth platforms, and we'll provide updates as we gain more insights into our performance as the year progresses.

Oren Livnat, Analyst

And can you comment on the directionality of generic gross margins or no?

Stephen Carey, CFO

Yes, right. Yes, your question. So I would say gross margins for the Generic business can absolutely expand. And the first thing that I would point to you there, right, is just the overall aggregate age of the portfolio, right, as you know, right, gross margin profiles and generics which tend to be best at the launch date. And then as competitive pressures kick in as time goes on, you would have margin compression and so as we are in an era of multiple generic launches off of the strength of the R&D platform, that lowers the aggregate age of our portfolio and is a positive contributor to the generic gross margin profile.

Nikhil Lalwani, CEO

To clarify and expand on what Steve mentioned, he stated that there is potential for growth, but we haven't provided specific guidance on the mix. We were sharing insights regarding the mix over the three years, and he was discussing the various factors at play.

Oren Livnat, Analyst

Yes. There are no guarantees in Generics. Regarding cash, I'm not an accountant, so I apologize if this seems like a basic question. When we discuss accounts receivable and its growth over the year, I just want to clarify whether that increase is mainly due to time, revenue growth, net payment terms, and a rapidly expanding top line. Or is there a difference in the collection cycle for the new orphan business compared to the legacy generics? Is there something distinct about accounts receivable collections in the orphan segment?

Stephen Carey, CFO

Yes, sure. To address the first part, in 2022, the use of cash and what is in accounts receivable is mainly influenced by the normal cycle and the significantly accelerating growth, even within the months. As Purified Cortrophin Gel becomes a larger part of our business, the contractual relationships and terms for this branded product tend to be more favorable compared to what we would expect from the Generic business. This should serve as another positive factor as Purified Cortrophin Gel increases its share of our overall business.

Operator, Operator

And we'll take a follow-up question from Elliot Wilbur with Raymond James.

Elliot Wilbur, Analyst

Just going back to Cortrophin. As we think about modeling the trajectory of the product and the various treatment curves and persistent trends within your three primary indications, any particular area where you're seeing overperformance perhaps versus the historical ACTH usage pattern? I guess some of the early data suggest that relative usage in nephrotic syndrome is much higher than what we've seen with Acthar. So I don't know if that's just a function of not enough data points or if, in fact, that's something that you're seeing as well. And then a bigger-picture question. As we start to see the ACTH market recover in terms of unit volumes, anything you could say in terms of sort of the patient dynamics there? I understand most of these patients would be sort of new to therapy, meaning they haven't been on either control for Acthar probably for 12 months. But any perspective you can offer at least at this early stage in terms of patients who may actually be treatment-naive or not previously on ACTH therapies in terms of the mix? And last question, I'm sure I know the response already, but Acthar labeling is differentiated because it has the infantile spasm indication, anything you can say about your plans in that area as well?

Nikhil Lalwani, CEO

Thank you, Elliot, for your insightful questions. Regarding your inquiry about whether we're observing favorable dynamics with one patient or indication compared to another in relation to Acthar's historical performance, I must refrain from commenting as it touches on areas that are competitively sensitive. On the topic of patient dynamics, I can share that there are prescribers who previously wrote prescriptions for the ACTH class and either decreased their prescribing or stopped altogether. However, as we've improved awareness and understanding of Cortrophin Gel, we’ve noticed a growing interest among these prescribers. Some are now writing their first prescriptions for Cortrophin Gel, while others are writing multiple prescriptions. This indicates that they are observing the effects on the patients they've put on Cortrophin Gel and are making informed decisions on which patients should continue with the therapy. Additionally, I want to clarify that all these dynamics are seen as favorable, which is reflected in our 2023 guidance of 92% to 116% growth compared to 2022. This sustained growth in the ACTH class has been consistent month after month for eight consecutive months. Regarding your question on the IS indication, I again must mention that this is competitively sensitive information. Before we proceed, I want to thank everyone for your patience and understanding as we navigate the balance between providing the investment community with information while safeguarding competitively sensitive details in a two-player market.

Operator, Operator

There are no further questions at this time. I'll turn the call back over to Nikhil Lalwani for our closing remarks.

Nikhil Lalwani, CEO

Thank you, Ashley, and thank you, everyone, for joining our call this morning. ANI is well-positioned to deliver sustainable growth, and we look forward to updating you on the continued progress. We appreciate your time and interest in ANI, and thank you.

Stephen Carey, CFO

Thank you.

Operator, Operator

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.