Earnings Call Transcript - ANIP Q1 2022

Operator, Operator

Good day, everyone, and welcome to First Quarter 2022 Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. It is now my pleasure to turn today's program over to Lisa Wilson, Investor Relations for ANI.

Lisa Wilson, Investor Relations

Thank you, Emma. Welcome to ANI Pharmaceuticals' Q1 2022 earnings results call. This is Lisa Wilson, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; Steve Carey, Chief Financial Officer; and Chris Mutz, Head of Rare Disease 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 May 10, 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?

Nikhil Lalwani, CEO

Thank you, Lisa. Good morning, everyone, and it's great to have you all join the ANI Pharmaceuticals call today, and for your interest in our company. We are looking forward to covering four key topics with you today: First, updating you on 2022 Q1 performance; second, sharing what we have accomplished and where we are headed on key growth initiatives; third, providing full-year 2022 guidance for the total company; and finally, discussing the organizational evolution to capture the opportunities that lie ahead for ANI. First, on quarterly performance, we delivered net revenues of $64.5 million in the first quarter of 2022, an increase of 18% year-over-year. As Steve will detail later, excluding the Yescarta royalty from prior year result, total net revenues would have increased nearly 49% year-over-year. This growth was driven by the acquisition of Novitium and the new product launches both from the ANI legacy business and the Novitium acquisition. During this quarter, we launched purified Cortrophin Gel, the lead asset in our Rare Disease business, and began offering patients suffering from certain autoimmune conditions, a choice in ACTH therapy. During the first quarter, after Cortrophin Gel launch, we achieved $1.3 million in net revenues. Our adjusted non-GAAP EBITDA for the quarter was $4.3 million. And the year-on-year reduction in non-GAAP EBITDA was driven primarily by the approximately $11 million of Cortrophin launch-related SG&A. Now, let me share with you what we have accomplished and where we are headed on key growth initiatives. Our first initiative is to build a successful Cortrophin Gel franchise, the lead asset of our Rare Disease business unit. On January 24, 2022, we announced the U.S. commercial availability and launch of purified Cortrophin Gel. 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 nephritic syndrome. The further reintroduction of Cortrophin Gel comes after over 20 years of having only one available ACTH treatment option. We are pleased with our progress since the launch approximately 15 weeks ago. Much credit must be given to our world-class cross-functional and commercial teams, including a dedicated and experienced Rare Disease sales force. 95% of our sales therapies are already sold, and our clinical account executives, that is, our sales force, have already reached almost 50% of targeted prescribers and generated awareness of and interest in Cortrophin Gel. Over 125 unique prescribers have initiated over 250 new patient cases for Cortrophin Gel therapy since launch, with approximately 25% of the unique prescribers having enrolled more than one patient. Initially, enrollments are distributed relatively evenly across our targeted specialties of rheumatology, neurology, and nephrology. Our trajectory has been strong, with growth in the number of new patient cases per week and a reduction in the average time from new case initiation to patient dispense. Equally important, our market access efforts have resulted in formulary coverage for over 100 million lives for one or more FDA approved indications and 16 million lives where we are advantaged. Our wholesale acquisition cost is approximately 23% lower than the wholesale acquisition cost of the only other ACTH therapy available. In addition, our patient services organization remains focused on establishing expanded access to Cortrophin Gel for patients and their caregivers throughout the treatment journey. Finally, our sales performance in April and early May reflects a strong launch trajectory. We have made very good progress in such a short time. And we are pleased to issue 2022 revenue guidance for Cortrophin Gel in the range of $35 million to $40 million. The next key growth initiative I will speak about is driving growth of our generics business by enhancing our R&D capability through the Novitium acquisition. The combined team has continued to execute well on ensuring continuity of business operations and capturing synergies from the combination. During the first quarter of 2022, we successfully launched several products with a total IQVIA market size of $240 million, with the majority of these launches, such as Misoprostol, Rifabutin, and Bisoprolol having three or fewer competitors. Successful execution of these new launches helped counter the impact of business erosion. We expect the pace and value of new launches to help drive growth for our generics business in the subsequent quarters. The R&D organization under the leadership of Samy Shanmugam continues to deliver with six new ANDA filings in Q1. In addition, the company retained its leadership in competitive generic therapy, CGT approvals with securing the CGT approval of betaine anhydrous solution. Today, ANI has over 20 ANDA files pending with the FDA and over 20 applications and multiple 505(b)2 products under development. The company remains focused on strengthening the product pipeline to further increase sustainability of our generics business. We have also made very good progress on driving efficiencies in our combined operations, procurement, and distribution. We will increase efforts in the area to further drive cost competitiveness. Next, I will turn to our established brands business. We are continuing to evaluate potential accretive asset acquisitions to capitalize on and augment our commercial and organizational capabilities. In parallel, we are maximizing the value of the current portfolio through innovative and fit-for-purpose commercialization strategies. ANI is well past its inflection point and has invested significantly in organizational capability and leadership bandwidth to support our evolution towards becoming a leading biopharmaceutical company. Our Rare Disease leadership team led by Chris Mutz has experience with over 20 rare disease product launches. Nearly 75% of the sales team has won a President's Club or equivalent top 10 sales award in recent years. Our generic R&D team has a prolific track record of delivering limited competition new launches. With that, let me turn it over to Steve to share the financial results and the full-year total company guidance.

Steve Carey, CFO

Thank you, Nikhil, and good morning to everyone on the call. As I review our first quarter financial results, please keep in mind that this was the first full quarter of Novitium operations in our consolidated results. In addition, it is the first quarter in which we are reflecting Cortrophin sales and marketing costs in our non-GAAP profitability measures now that we are in the post-launch period. For the three months ended March 31, 2022, we posted total net revenues of $64.5 million. This is up nearly $10 million or 18.3% compared to the prior year period, driven by revenues from the Novitium acquisition and new product launches tempered by the non-recurrence of the material royalty item that occurred in the first quarter of 2021. In total, the Novitium acquisition benefited net revenue comparisons by approximately $19.2 million across our generic pharmaceuticals, contract manufacturing, royalties, and product development services categories of revenue. This significant gain was somewhat offset by the non-recurrence of $11.2 million of royalty income recognized in the first quarter of 2021. Excluding the Yescarta royalty from the prior year result, total net revenues would have increased nearly 49% year-over-year. Net revenues for the generic pharmaceutical products were $49.1 million during the three months ended March 31, 2022, an increase of $16.1 million or 49% from $33 million in the prior year period. The net increase was principally driven by $15.7 million in revenues associated with the Novitium acquisition as well as sales of Nebivolol, which ANI launched in September of 2021. We also saw an increase in overall volumes in the generic segment as the market continued to recover from the COVID-related suppression experienced in 2020 and 2021. Net revenues for branded pharmaceutical products were $8.5 million during the three months ended March 31, 2022, an increase of 12% compared to the $7.5 million for the same period in 2021. The net increase was driven by modest increases in sales across several portfolio products, including those acquired from Sandoz and launched in April of 2021, and a shift in mix towards products with higher average selling prices. Contract manufacturing revenues were $2.9 million during the three months ended March 31, 2022, an increase of 13% compared to the $2.6 million for the prior year period, due to an increase in the volume of orders, including $1.1 million of Novitium contract manufacturing revenues. Royalty and other revenues were $2.7 million during the three months ended March 31, 2022, a decrease of $8.7 million from $11.4 million for the prior year period, due to the aforementioned final royalty payment under the Kite Pharma license agreement for Yescarta that was recognized during the three months ended March 31, 2021. Royalty and other revenues in the first quarter of 2022 consisted primarily of $1.9 million in royalty revenues related to Novitium arrangements, and $0.6 million in product development service revenues. Net revenues of rare disease pharmaceutical products consist entirely of sales of Cortrophin Gel, which totaled $1.3 million during the three months ended March 31, 2022. These recognized sales figures reflect a natural lag between new case initiation and the dispensing of a product that is inherent in the early days of a rare disease new product launch. Looking forward, we anticipate very strong quarter-over-quarter sequential growth during the remainder of the year. Operating expenses increased by 63% to $83.7 million for the three months ended March 31, 2022, up from $51.5 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $14.3 million to $34.3 million in the first quarter of 2022, compared to $20.0 million in the prior year period, primarily as a result of increased volumes, including $9.5 million of costs related to sales of Novitium products. The Novitium cost included a $3.2 million charge representing the excess of fair value over cost for inventory acquired in the business combination, partially offset by a decline in sales tied to profit-sharing arrangements. Excluding the impact of acquisition accounting and stock compensation, cost of sales on a non-GAAP basis as a percentage of total net revenues increased 10.4 points from 36.6% in the prior year to 47% in the current year period. This increase was driven by the non-recurrence of Yescarta royalties, which had no corresponding cost of goods sold, and a higher mix of generic sales. Excluding Yescarta from the prior year calculation, cost of goods on a non-GAAP basis would have been approximately 46.1%, essentially flat with the current year. Research and development expenses increased to $5.3 million in the first quarter of 2022, from $3 million, an increase of 78% primarily due to the addition of Novitium costs tempered by a decrease in expenses associated with the completion of our Cortrophin development efforts. During the quarter, we filed six new ANDAs with the FDA on the strength of our R&D efforts. Selling, general, and administrative expenses increased by $11.2 million in the first quarter of 2022, to $28.8 million compared to $17.6 million in the comparable quarter in 2021. The increase primarily reflects an $11.0 million increase in sales and marketing expenses related to the Cortrophin launch, and $2.7 million of expenses primarily related to the addition of Novitium headcount and activities, partially offset by a decrease in transaction expenses related to the Novitium acquisition. Depreciation and amortization expense was $14.6 million for the three months ended March 31, 2022, an increase of $3.7 million compared to $10.9 million for the same period in 2021. This increase is primarily a result of amortization of intangible assets acquired in the Novitium transaction. Our $1.27 GAAP net loss per share reflects significant amortization and inventory step-up charges resulting from the Novitium acquisition, coupled with the sales and marketing expense behind our initial commercial launch of Cortrophin. As it relates to our non-GAAP profitability measures, the current period in the first quarter that we are reflecting Cortrophin sales and marketing costs, prior to this period, 100% of such costs were added back as pre-launch related expenditures. Adjusted non-GAAP EBITDA for the first quarter was $4.3 million as compared to $18.9 million for the first quarter of 2021. Our adjusted non-GAAP diluted loss per share was $0.12 for the quarter, compared to diluted earnings per share of $1.04 for the first quarter of 2021. As of the March 31 balance sheet, we had $76.9 million of unrestricted cash and cash equivalents, and total net debt utilizing the face value of debt net of unrestricted cash on hand as of March 31 was $222.4 million, compared to $199.7 million as of December 31, 2021, reflective of lower cash on hand as we utilized cash in the quarter to support our Cortrophin launch efforts. Now, turning our attention to forward-looking guidance, due to increased Cortrophin launch visibility and momentum, we are providing total company guidance with today's release. On a total company basis, for the projected 12 months ended December 31, 2022, we currently anticipate net revenue between $295 million and $315 million, representing approximately 36% to 46% growth compared to the $216.1 million recognized in 2021. Research and development expenses will be between $16 million and $18 million, adjusted non-GAAP EBITDA between $54 million and $60 million, adjusted non-GAAP diluted earnings per share between $1.34 and $1.62. In addition, we are providing the following purified Cortrophin Gel specific measures: Net Revenue between $35 million and $40 million, and direct selling, general, and administrative expenses between $42 million and $46 million. In addition, we currently anticipate between 16.9 million and 17.0 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. With that, we will now open up the call for questions. Operator, please go ahead with the instruction.

Operator, Operator

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

Elliot Wilbur, Analyst

Thanks. Good morning. Just a couple of quick ones upfront for Steve, first, just looking to connect updated guidance versus the guidance provided back in early March, it doesn't look like there was any change with respect to anticipated EBITDA generation on the base business, but just wanted to confirm that. And then, how should we think about your outlook for operating cash flow over the balance of the year, given the need to continue to support the initial Cortrophin launch? And then, I have got a couple for Nikhil as well.

Steve Carey, CFO

Sure, Elliot. Good morning, and thanks for the question. So, yes, your observations regarding guidance this morning are spot on. So, the base business guidance, which as you will recall, at our last earnings call we provided guidance ex-Cortrophin, so that portion of the guidance remains unchanged this morning, and we are overlaying the Cortrophin guidance onto that previous guidance. And then, regarding the outlook for operating cash, yes, we are very confident in terms of when we look for the quarterly projections, and the trajectory of the overall business as well as how we expect the Cortrophin standalone product P&L to develop over the next three quarters, we remain very confident in our cash position and the ability to support the business, and support all of our key initiatives for the business. The quarterly cash flow that you are seeing in the first quarter is completely as expected, given the heavy lift in the early days of the Cortrophin launch, right, where the selling and marketing spend really occurs essentially on a divide-by-four basis, when you know, obviously the revenue and the associated gross profit streams, like you are starting from zero, and then building from there. So, nothing unexpected in the first quarter, and we have a high degree of confidence in the forthcoming quarters, two through four, to support the business. And I will turn it back to you to ask your questions for Nikhil there.

Elliot Wilbur, Analyst

Yes, thanks. I have a couple of questions regarding the initial Cortrophin launch. Nikhil, could you provide more details about the early success you are observing in terms of the source of patients? Are these patients new to therapy, switching from competitive therapies, or are they individuals who may have previously been on ACTH therapy but have left the market due to access issues? I'm trying to understand if you are seeing indications that the Cortrophin Gel launch is actually expanding the market rather than just facilitating switches between Cortrophin and existing products.

Nikhil Lalwani, CEO

Yes, so, good morning, Elliot, and thank you for your questions. I'll start and then, we have our Head of Rare Disease, Chris Mutz on the call, so he can chime in with additional commentary. I think that going back to your question, the first thing is to just clarify or confirm that what we did right out of the gate, I think in the early days of the launch, is focus on new target therapeutic areas and prescribers, right, so believers in the ACTH therapy, right? And so, our target specialties are rheumatology, neurology, and nephrology, looking at prescribers in those areas. What we've seen, to answer your question, is that we are definitely seeing in the enrollments that we have that there are new patient starts. But the other dynamic that is interesting, and answers your question is, you know, prescribers that had higher volumes of prescriptions in the prior periods, not the current last 12 months, but the period prior to that, have started giving us additional prescriptions, which leads us to believe, and that was our intent with the launch of purified Cortrophin Gel, that we are expanding both through access as well as with the reach within the prescriber group, the number of patients that can benefit from this therapy. Now, I want to reframe something that I said at the last earnings call, which is when you look at a claims-based epidemiological analysis that shows that less than 10% of patients who were steroid-resistant and refractory across primary indications receive ACTH therapy. That's how we see the market and the patients who need this therapy. Chris, would you like to add anything?

Chris Mutz, Head of Rare Disease

Yes, sure. Thank you, Nikhil, and thanks for the question, Elliot. I think we are very focused as a dedicated Rare Disease sales team on clinical conversations with physicians who are more comfortable with ACTH-based therapy from past experience and who are focusing on new patients, and concentrating on the clinical discussions that will identify patients who could really benefit from Cortrophin Gel. That really has been our primary focus. And so, as Nikhil said, the vast majority of these conversations are leading to new patient starts currently, and we are just getting started with the launch.

Elliot Wilbur, Analyst

Okay. And then just one follow-up question for you, Chris. Can you talk about your language in the release this morning that discusses identifying new patient cases and ultimately turning those into prescriptions while looking to shorten the time frame for that process? Could you provide some insight into the hurdles and challenges in capturing the attention of physicians, generating prescriptions, and getting patients started on therapy?

Chris Mutz, Head of Rare Disease

Yes, sure. Certainly, in the first few months of any new product launch, and especially in the rare disease space where these therapies are often quite expensive, we run into headwinds of initial denials from commercial insurance plans. That has been about managing initial denials and using our internal team, field reimbursement, as well as the business trends experts that we have in our hub to work with the office to prepare the package and the data that's needed to overcome those denials and ultimately get Cortrophin approved has been a key headwind early on. But we are really confident regarding the teams that we have in place to improve that approval pathway for patients, and we have seen that improvement.

Elliot Wilbur, Analyst

Okay. And that's just what you are observing.

Nikhil Lalwani, CEO

So, Elliot.

Elliot Wilbur, Analyst

Sorry. Is that just your standard payer, we don't cover products in the first 12 months type of hurdles that you were referring to?

Chris Mutz, Head of Rare Disease

Yes. I would say that that in this first period of three-plus months, we're certainly running into standard payer issues for sure.

Nikhil Lalwani, CEO

So, Elliot, if I may just build on what Chris said, I think a couple of things. One is just to be clear, the 250 new case initiations are the patients that prescribers have written prescriptions for. So, I think that's just one thing to clarify. Then the second thing is we have made good progress in the getting formal coverage for over 100 million lives where they have at least one or more FDA approved indication. So, obviously, that's helping move the enrollment to fulfillment process. And I think the last part to say is look, we are very encouraged by the progress we have made in improving the average time it takes from new case initiation to dispensing vials during the first 3+ months of the launch. The time from new case initiation to fulfillment has varied and has depended on payor coverages as Chris said. But, in some cases, we have seen Cortrophin Gel approved and shipped to patients in as fast as 36 hours when coverage is in place. This is classic rare disease, and we factored in the acceleration of this time for enrollment to fulfillment as we read out our full-year guidance.

Chris Mutz, Head of Rare Disease

All right, thank you for the questions.

Operator, Operator

We will take our next question from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes, Analyst

Hi, thanks for taking my questions. Maybe just building on from the prior question, can you maybe talk about how many out of 250 patient cases are actually paid scripts at this stage versus they're not funding, any stocking in the first quarter, and any color on how many of the 250 patient cases may have been initiated in the first quarter?

Nikhil Lalwani, CEO

Yes. Thank you, Brandon, and good morning. To make sure I understand all three of your questions correctly, the first is how many of the 250 cases are paid cases; the second is about the funding; and the third question is how many of the 250 were initiated after the quarter ended. Could you please repeat your second question for me?

Brandon Folkes, Analyst

Yes, the $1.3 million revenue recognized in the quarter, just any color on stocking?

Nikhil Lalwani, CEO

Got it. Yes. So, on the first one, regarding the portion of the cases that are paid cases versus the 250, as you would expect, we are processing the enrollments for the 250 cases. Clearly, the $1.3 million of revenue in quarter one is not reflective of the majority of these patients moving to therapy, right? So, I can't give you a holistic answer on how many of these will be paid cases versus not, right? However, I will clarify that we obviously have a number of patients on therapy, and for those patients that are on therapy, what we're seeing in terms of paid versus non-revenue generating vials, I think that the mix is in line with what we anticipated as we launch this product. So, that's the first. I think the second is how many of these, of the 250, have been initiated after the close of the quarter? I don't have an exact split, but the trend, the weekly number of new inpatient enrollments per week have increased week-on-week. For us, there is a clear upward trajectory, clearly as you remember, we launched on January 24, and so there were about eight, nine weeks of the first quarter. There has been a significant improvement in momentum, and new case generation. We are also seeing that in the revenue, as indicated earlier, revenues of $1.3 million for the first quarter, and I highlighted during my prepared comments that in April and May, we clearly have seen an increase in sales and that trajectory, which is part of the data that we looked at as we gave our full-year guidance. And then, the third question is on the $1.3 million in first quarter; there was not a large stocking in that number. Remember, we are using a network of specialty pharmacies for our distribution, and then a distributor for the hospitals and IDMs. So, there is limited stocking in the first quarter number, to the best of our understanding.

Steve Carey, CFO

Yes. I think it would also be safe to add to that, Nikhil, that based upon the reorders that we've seen in April and May, it suggests that the first quarter units have largely, if not entirely, been consumed. So, I think that's another angle on that question as well.

Brandon Folkes, Analyst

Yes, thank you for that, Steve.

Steve Carey, CFO

Okay, thank you very much.

Operator, Operator

There are no further questions at this time.

Nikhil Lalwani, CEO

All right. Well, yes, it's back to me. Thank you everyone for joining us on the call and being with us on this journey to deliver high-quality medicines to underserved patients while creating shareholder value. We are pleased with how 2022 had begun. Thanks again, and stay well.

Operator, Operator

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