ANI Pharmaceuticals Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 29, 2024

Key Takeaways

  • Record 2023 performance: ANI delivered $486.8 M in revenue (+54% YoY), $133.8 M adjusted EBITDA (+140%), and $4.71 non-GAAP EPS (+246%).
  • Cortrophin Gel growth: Q4 sales reached $41.7 M (+137% YoY, +40% sequential), driving full-year sales of $112.1 M (+169%) with expanding specialty traction in nephrology, neurology, rheumatology, pulmonology, ophthalmology, and a new gout indication.
  • Robust 2024 guidance: Total revenues are expected at $520–$542 M (+7–11%), Cortrophin revenues at $170–$180 M (+52–61%), adjusted EBITDA of $135–$145 M, and non-GAAP EPS of $4.26–$4.67.
  • Genetics & generics momentum: Q4 generics revenue hit $71.8 M (+24% YoY) with 11 new product launches in 2023, supported by U.S. manufacturing scale, zero FDA observations, and aggressive cost‐reduction initiatives.
  • Strong financial footing: Year-end cash of $221.1 M, net leverage at ~0.5×, operating cash flow of $119 M for 2023, and no expected supply‐related tailwinds baked into 2024 guidance beyond Q1.
AI Generated. May Contain Errors.
Earnings Conference Call
ANI Pharmaceuticals Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. 4th Quarter 2023 Earnings Results Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call is being recorded.

Operator

I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Judy DiClemente, Investor Relations for ANI Pharmaceuticals.

Speaker 1

Thank you, Angela. Welcome to ANI Pharmaceuticals' Q4 2023 earnings call. This is Judy DiClemente of Incyte 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.

Speaker 1

Before we get started, I would like to remind everyone that any statements made on today's conference call that express the 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.

Speaker 1

The archived webcast will be available on our website, www.anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on February 29, 2024. 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?

Speaker 2

Thank you, Judy. Good morning, everyone. Thank you for your interest in ANI Pharmaceuticals and for joining our Q4 earnings call. First, I want to thank our customers, suppliers, partners, investors and the entire ANI team for their collaboration and significant contributions in delivering on our A strong Q4 capped off a record year and we finished 2023 with $486,800,000 in total revenue, an increase of 54% over 2022. Adjusted non GAAP EBITDA was a record $133,800,000 up 140% year over year.

Speaker 2

And adjusted non GAAP earnings per share was $4.71 an increase of 2 46 percent from 20.22. Total revenues for the Q4 were $131,700,000 an increase of 40% over the Q4 of 2022. Our lead rare disease asset purified Cortrophin Gel generated $41,700,000 in the quarter, a year over year increase of 137% and a sequential increase of 40% from Q3. For the full year, Cortrophin generated sales of $112,100,000 representing year over year growth of 169%. I continue to be tremendously pleased by the effort and output of our rare disease team in building our Cortrophin Gel franchise.

Speaker 2

New patient starts accelerated during Q4 with the strongest sequential over quarter growth in revenue to date. In addition to record new cases initiated and new patient starts, we saw a significant number of first time ACTH users as well as the return of HCPs who had not prescribed ACTH for several years. Our world class rare disease sales and marketing team continues to grow the overall ACTH market and overall awareness of ACTH treatment in the U. S. For appropriate patients.

Speaker 2

ACTH market and overall awareness of ACTH treatment in the U. S. For appropriate patients. Total ACTH unit volume was up 15% in 2023 compared to 2022 according to IQVIA. While the number of patients being treated with ACTH therapy in the U.

Speaker 2

S. Is significantly lower today than it was several years ago, since the launch of Portofengel in the first quarter of 2022, the overall category ACTH category has experienced 7 consecutive quarters of year over year growth and the outlook for the category remains robust. Next, let me share commentary on performance across specialties. FORTROPHEN demand growth continued across our specialties targeted at launch, which were rheumatology, neurology and nephrology. In the Q2 of 2023, we expanded into pulmonology and we quickly gained momentum in this therapeutic area during the Q4 with positive physician responses and growth in new cases initiated and new patient starts.

Speaker 2

Let's turn next to gout. Fortrophin Gel is the only ACTH product indicated for the treatment of acute gouty arthritis flares. During the quarter, we launched a new 1 ml vial size of Cortrophin Gel for the treatment of acute gouty arthritis flares. Physicians can now administer Cortrophin Gel in their office when a patient presents with an acute need. While it is still early in the launch, we are optimistic about the potential of Cortrophin Gel for this indication, which represents a unique opportunity to introduce Cortrophin to new prescribers.

Speaker 2

As we look ahead to 2024, we expect Cortrophin revenues to grow 52% to 61% to $170,000,000 to $180,000,000 We believe we are early in the trajectory of and new specialty areas. We are taking several steps in 2024 to further support this important product. We are adding a second geographical region to our pulmonology sales force given the strong traction we have seen so far in this therapeutic area. We continue to expand our disease state coverage by adding a small targeted sales force in ophthalmology. This is a specialty where ACTH prescribing has gained traction over the past few years.

Speaker 2

We believe ophthalmology could be a meaningful growth contributor for Cortrophin. We are collaborating with top physicians and scientists to better delineate Cortrophin Gel's activity and mechanism of action and help guide treatment We are also continuing our efforts to better support the patient journey and are investing in enhancing the convenience and removing pain points for patients starting on ACTH and the healthcare providers who treat them. Expanding the scope and scale of our rare disease business through M and A and in licensing remains a high priority. We are currently evaluating opportunities with a focus on assets that are on or close to market and that overlap with our current priority therapeutic areas of nephrology, neurology, rheumatology, pulmonology and ophthalmology. We are also considering assets outside of our priority therapeutic areas that would leverage our rare disease platform.

Speaker 2

Turning now to our genetics business which delivered another strong quarter. We generated $71,800,000 in revenue during Q4, an increase of 24% over the last year and 2% over the strong revenue we reported in Q3. As with the prior three quarters, we were able to leverage ANI's exceptional new product launch execution, operational excellence and U. S.-based manufacturing footprint to achieve this growth. For the full year, our genetics business generated sales of $269,400,000 representing year over year growth of 28%.

Speaker 2

Three key factors will enable our G and A business to continue delivering robust growth. 1st, our high performance R and D team. In 2023, we delivered 11 new product launches and 20 new product filings. In addition, we retained the number 2 ranking for competitive generic therapy approvals. 2nd, our strong operational backbone and U.

Speaker 2

S.-based manufacturing footprint. During 2023, we supplied over 1,500,000,000 doses of therapeutics to patients in need. In addition, our efforts to expand the manufacturing footprint at our New Jersey site are on track to get the site operational by this quarter. The company continues to maintain a strong compliance track record with successful FDA audits across sites. Most recently, our New Jersey site successfully concluded both a pre approval and a pharmacovigilance inspection with the FDA with 0 observations.

Speaker 2

3rd, our systematic and relentless approach to reducing costs, whether it be for raw materials, finished goods or corporate spend. Overall, our genetics business remains an established and reliable partner of choice for our customers. Our Established Brands business continues to address patient needs with reliability of supply, a unique set of commercial capabilities and our opportunistic business development to expand the portfolio. Our overall portfolio is strengthened by this high gross margin, low working capital and strong cash flow generation business. 2023 was a record year for ANI and we're already off to a strong start in 2024.

Speaker 2

We look forward to continuing the momentum as we remain focused on serving patients, improving lives. I'll now turn the call over to Steve who will walk through our Q4 financial results in more detail and discuss our guidance for 2024. Steve?

Speaker 3

Thank you, Nikhil, and good morning to everyone on the call. We posted another strong quarter to close out 2023 with 4th quarter revenues of $131,700,000 up 40% over the prior year period. Revenues from Cortrophin Gel reported in our rare disease segment were 41,700,000

Speaker 4

dollars up

Speaker 3

137% from the prior year and 40% from the 3rd quarter driven by increased volume. 4th quarter revenues in our generics, established brands and other segments were 89,900,000 dollars an increase of 17% over the prior year period. Within this segment, generic revenues for the quarter were $71,800,000 an increase of 24% over the prior year period and 2% over the 3rd quarter, driven by increased volumes in the base business and contributions from new products launched in both 2022 and 2023. To continue with this segment, net revenues for Established Brands and other revenues were $18,100,000 in the quarter, a decrease of 3% from the prior year period driven by lower volume. The performance was in line with our expectations as described on the 3rd quarter earnings call when we noted that the market conditions for specific molecules had recently changed.

Speaker 3

Cost of sales excluding depreciation and amortization increased 47 percent to $53,400,000 in the Q4 of 2023 compared to the prior year period, primarily due to significant growth in sales volumes of both generic and rare disease pharmaceutical products. Non GAAP gross margin was 59.6 percent, Research and development expenses increased 89% to 9,900,000 dollars in the Q4 of 2023, primarily due to a higher level of activity associated with ongoing and new products. Selling, general and administrative expenses increased by 34% to $44,500,000 in the Q4 of 2023, primarily due to increased employment related costs, rare disease sales and marketing costs, legal expenses and patient assistant program costs as well as an overall increase in activities to support growth. Net income available to common shareholders for the Q4 of 2023 was $700,000 as compared to net loss of $4,700,000 in the prior year period. 4th quarter diluted GAAP earnings per share was 0 point 0 $4 as compared to a $0.28 loss in the prior year period.

Speaker 3

On an adjusted non GAAP basis, diluted earnings per share was $1 for the quarter compared to $0.76 per share in the prior year period. Adjusted non GAAP EBITDA for the Q4 of 2023 was $30,200,000 an increase of 29% over the prior year period. From a balance sheet perspective, we ended the quarter with $221,100,000 in cash. This balance is net of $12,500,000 of contingent consideration paid to selling shareholders of Navidium in the 4th quarter. We generated cash flow from operations of 44 point $7,000,000 during the Q4 and $119,000,000 for the full year.

Speaker 3

We have $294,000,000 in face value of outstanding debt, which is due in November of 2027. At the end of the Q4, our gross leverage was 2.2 times and our net leverage was approximately a half a turn of our trailing 12 month adjusted non GAAP EBITDA of $133,800,000 Turning to 2024 guidance. We expect total revenue of $520,000,000 to $542,000,000 which represents growth of 7% to 11% over 2023. For Cortrophin Gel, we expect revenue to be in the range of $170,000,000 to $180,000,000 representing growth of 52% to 61%. As you consider the quarterly progression for Cortrophin Gel in 2024, please note that general pattern of revenue in 2024 is expected to be similar to that reported in 2023 with a modest quarter over quarter decline in the Q1 due to prescription reauthorization followed by a strong return to growth in the Q2.

Speaker 3

This pattern is generally consistent with other rare disease drugs. For generics, we anticipate high single digit to low double digit revenue growth on top of our exceptionally strong performance of 28% year over year growth in 2023. We expect pricing dynamics for our base generics business to be similar to that experienced in 2023. Note that our generics guidance does not assume incremental benefit from future competitor supply shortages, which were a tailwind in 2023. For Established Brands, given our performance in the 1st 2 months of the year, we believe that revenue in the Q1 of 2024 will be higher than that achieved in the Q4 of 2023.

Speaker 3

Despite that, we expect that the significant tailwind by competitive supply disruptions in 2023 will moderate on a full year basis in 2024. As such, our 2024 guidance does not assume any incremental supply tailwinds we are currently seeing beyond the Q1 of the year. Moving down the P and L, we expect total company non GAAP gross margin between 62% 63%, which reflects modest erosion relative to 2023 due in large part to product mix. The key factors impacting our 2024 gross margin outlook include higher contribution from Cortrophin Gel Revenues where the margin is meaningfully accretive to our corporate gross margin, offset by lower contribution from Established Brands, which is our highest gross margin segment. Given the overall strength in the business, we will continue to invest in key growth initiatives in 20 24 and expect total operating expense growth.

Speaker 3

Contemplated in our guidance is increased investment in R and D to fuel generics growth through new product launches along with further strengthening of the Cortrophin Gel franchise through the initiatives that Nikhil spoke of moments ago. We are also investing in high ROI initiatives in Cortrophin sales and marketing. Taking all of those factors into account, we expect full year adjusted non GAAP EBITDA of $135,000,000 to $145,000,000 and adjusted non GAAP earnings per share between $4.26 $4.67 in 2024. We currently anticipate between 19,300,000 19,700,000 shares outstanding for the purpose of calculating diluted EPS, which is reflective of a full year of shares outstanding resulting from our May 2023 equity raise. We currently expect our U.

Speaker 3

S. GAAP effective tax rate to be between 20% to 22% as compared to 5.5% in 2023. The company will continue to tax effect adjustments utilized in the computation of its adjusted non GAAP diluted earnings per share using our estimated statutory rate of 26%. We will now open up the call to questions. Operator, please announce the instructions.

Operator

We'll take our first question from Gary Nachman with Raymond James.

Speaker 5

Hi, guys. Good morning and congrats on all the progress. First on Kartrofen, the 2024 guidance, just how much market growth are you assuming versus share gains from Acthar? And any changes in net price anticipated over the course of the year? And what therapeutic areas do you think should be the biggest contributors, I guess, looking out into this year since the guidance look pretty solid.

Speaker 5

And then just in terms of looking at additional rare disease assets, just talk about the market, Nikhil, and how many different opportunities you're looking at currently? Are they mostly in your current therapeutic areas? I know you're willing to consider assets outside those therapeutic areas as well. And then just in terms of size, how big are they? And are you confident you can get a deal done sometime this year?

Speaker 5

Thanks.

Speaker 2

Yes. Thank you, Gary. Thank for your question and good morning. To your first question on Cortrophin guidance in 2024, The overall category outlook remains robust. The number of patients being treated with ACTH treatments, of course, for appropriate patients is significantly lower than where it was a few years ago.

Speaker 2

So the outlook for the category remains robust. And as you've seen, we have had 7 quarters consecutively of quarter on quarter year over year growth in the number of units. So the growth opportunities in the category as a whole is significant. 2nd, your question on price, we try to find a balance between sharing information that assists the investment community while not giving away competitively sensitive data. But publicly, you will see that both our competitor and we took a 3% price increase on January 1, 2023.

Speaker 2

And then third part of your question on Cortrophin was around the therapeutic areas. And look, we see strength in both the therapeutic areas that we initially launched with, nephrology, neurology and rheumatology, as well as the newer therapeutic areas that we have begun investing in, which is pulmonology, ophthalmology and gout. And we see momentum. Ophthalmology is clearly new, but we've seen momentum across these therapeutic areas. We have as reported record number of new patient starts and new cases initiated in the Q4 of 2023.

Speaker 2

We see that momentum continuing in the Q1 and throughout 2024. And we also have seen growth across these therapeutic areas. So no one therapeutic area to sort of point out. The second question was on M and A. We are we have been looking for assets for some period of time.

Speaker 2

We are again trying to find a balance between sharing information that's helpful to the investment community while not giving away sensitive data, in this case, to the companies that we're engaged with. But there are companies that we're engaged with and multiple ones. And they are both ones that they are aligned with our current priority therapeutic areas as well as one and therefore leveraging our sales force and ones that are outside of our therapeutic areas but leverage the rest of our rare disease platform. Yes. And of course, as mentioned earlier, expanding the scope and scale of our rare disease business through BD and M and A remains a high priority for the company.

Speaker 2

Thank you, Gary.

Speaker 5

Great. Thank you so much.

Operator

The next question comes from Vamil Divan with Guggenheim Securities.

Speaker 4

Hi, this is Daniel on for Vamil. Thanks for taking my question. So based on our analysis of script trends for the Q4, yes, the Control Panel sales are maybe a bit stronger than we had originally anticipated. So like what do you think is maybe the main driver of this? Are there particular channels that aren't recaptured in IQVIA or just more like a pricing dynamic with improvements seen in that price?

Speaker 4

And then second question is more on the expense side. So I appreciate your overall commentary on what you maybe expect in 2024, but maybe you can get a little more detail on the breakdown between like SG and A and R and D going forward, like how do you expect the growth in these? Is there any more growth in 1 versus the other? Anything there would be helpful. Thank you.

Speaker 2

Yes. Thank you, Daniel, and good morning, and thank you for joining the call. Look, and your question on Q4 Cortrophin performance versus what the IQVIA data is showing. For us revenues trended ahead and will continue to trend ahead due to increased volumes. Key factors driving these are further increase in effectiveness of our existing sales force, the record number of new patient starts and continued growth across specialties we targeted since launch and the new areas such as pulmonology, gout and now ophthalmology.

Speaker 2

And then to your second question regarding expenses, we will continue to invest in key growth initiatives in 2024. And as Steve had mentioned, expect total operating expenses to essentially grow in line with the revenue growth and below the 2023 expense growth. And what's contemplated in our guidance is investment in R and D to fuel the generics growth, right? Our generics business is larger, so we're investing to continue fueling the generics growth through new product launches, right, to be able to deliver the high single digits, low double digit growth on the generics business. We've also talked about increased spend on the Cortrophin side to expand that franchise, the Cortrophin Gels franchise, where we are adding sales team members and marketing and sales efforts in our newer specialty areas of and operations to support the future growth.

Speaker 2

And there's also modest R and D spending for Cortrophin on collaboration with top physicians and scientists to better delineate Cortrophin Gel's activity and mechanism of action and help guide treatment decisions as well as to better support the patient journey and enhance the convenience as well as remove pain points for patients starting on ACTH. You also asked about, look, what's the specific, what is it more in one area versus another? And I think we're investing in both, right? The Cortrophin related initiatives as well as the additional R and D spend to support the generics business. Thank you, Daniel.

Speaker 4

Okay, great. Thank you.

Operator

The next question comes from Les Zlucske with Truist Securities.

Speaker 6

Hi, this is Jeremy on for Luz. Thanks for taking our questions. Regarding market normalization, what issues are mostly resolved or likely to be resolved this year versus what might still linger? And then also just any color on more color on the progress in pulmonology from the sales force expansion and any early launch metrics on the 1 milliliter dose? Thanks.

Speaker 2

Good morning and thank you, Jeremy, and thank you for joining our call. I think you asked 3 questions. One was on pulmonology. So on pulmonology, as we had mentioned, we have seen traction, increased number of new patient starts, increased number of new cases initiated and positive physician response. Seeing the momentum that we have from the first region, right, we had added a smaller sales force in the Q2 of 2023.

Speaker 2

We're adding a second geographical region in pulmonology. So we are seeing the traction there and are investing to continue increasing the awareness in the pulmonology specialty. You also asked about the 1 ml vial and the gout therapeutic area. Look, we are optimistic about the potential for OSCO Trofin Gel for this indication. However, it is early in the launch and we look forward to sharing updates in the future.

Speaker 2

As far as market resolutions and overall market dynamics, the overall macro trend of supply related tailwinds continues. Having said that, what is contemplated generics. We have not contemplated any additional benefits from the supply tailwinds and for established brands. We have not contemplated additional tailwinds beyond what we're already seeing in the Q1 of 2024.

Speaker 6

Thank you.

Speaker 2

Thank you, Jeremy.

Operator

It appears we have no further questions at this time. I will now turn the program back over to Nikhil Lalwani for any additional or closing remarks.

Speaker 2

Yes. Thank you everybody. Thank you for again for spending time with us and for joining our call this morning and supporting the ANI team as we work to fulfill our purpose of serving patients, improving lives. We look forward to keeping you updated during the year ahead. Thank you.

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