Q2 2020 ANI Pharmaceuticals Inc Earnings Call
Good morning, everyone and welcome to <unk> second quarter 2020 earnings Conference call.
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It is now my pleasure to turn todays program over to Lisa Wilson Investor Relations for an eye Pharmaceuticals. It's Wilson. Please go ahead.
Thank you Christie welcome to and I Pharmaceuticals, Q2, 2020 earnings results call.
This is Lisa Wilson of insight Communications Investor Relations for an eye.
With me on today's call or Patrick Wall, interim President and Chief Executive Officer.
And Steven Kerry Chief Financial Officer of and I.
You can also accessing the webcast of this call Rudy Investor section of the and I website <unk>.
And I pharmaceutical dotcom.
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 maybe considered forward looking statements.
The fun by the private Securities Litigation Reform Act.
These forward looking statements are based on information available to and I pharmacy management as of today and a involve risks and uncertainties, including those noted in our press release issued this morning, and our filings with the FCC.
Such forward looking statements are not guarantees of future performance.
Actual results may differ materially from those projected in the forward looking statements.
And I, specifically disclaims any intent.
Our obligation to update these forward looking statements, except as required by law.
The archived webcast will be available for 30 days on our website and I pharmaceuticals Dot com.
For the benefit of those who maybe listening to the replay or archive webcast. This cold held and recorded on August 620 20.
Since then and I may have made announcements related to the topics discussed. So please reference the company's most recent press releases and FCC filings and with that I'll turn the call over to Patrick Walsh.
Thank you Lisa good morning, everyone and thank you for joining our call today.
Cobot 19 pandemic has affected all of US it has altered our personal lives and has had an impact on our industry.
I'd like to personally express my appreciation for our dedicated employees and contract manufacturing network.
And then our ability to continue supply of medicines critical to patients and caregivers.
Let me first start off with a brief overview of that business, including second quarter events, and the ways in which and I 'cause adapting to the pandemic related.
Good wins in the second quarter, both and I and the broader pharmaceutical industry experienced depressed overall demand for prescription drugs, reflecting declining physician visits lower hospital admissions across the country.
Well our business felt those dampening effects, we're probably the way we have managed through these challenges we've kept our manufacturing facilities open ensuring continuous supply of or medicines and of course, we have worked tirelessly to keep our employees safe.
That said or products have continued to perform well, albeit at lower levels due to cobot.
Well some of this weakness is likely to purchase persist into the third quarter. We do anticipate that our portfolio, we began to rebound to pre cobot levels by year end.
Assuming resumption of normal patient physician activity and there's not a significant second wave cobot.
We reported second quarter 2020, net revenues of 48.5 million adjusted non-GAAP EBITDA of 15.4 million and adjusted non-GAAP diluted earnings per share of 69 cents.
During the second quarter, we continue to expand their commercial portfolio, we announced our six generic launch of the year next gelatine hydrochloride capsules.
The annual U.S. market for this product is about 16 million and this was the first product launch of an anti product at our Oakville, Canada site.
In early June we acquired Sukarno's, all tablets for 3 million.
The annual U.S. market through this product is approximately 40 million.
This product previously manage manufactured for a contract client is also manufactured at our OCO, Canada site.
Let me now turn the corner Tropin gel and the steps, we're taking the resubmit our SMB a application to the FDA.
In collaboration with a prominent consulting firm, we completed a comprehensive gap assessment.
In parallel we made significant changes to the leadership team working on this project.
And I'm confident that we have the right people in place to construct a robust submission.
Our first step is to prioritize any deficiencies identified the majority of which have already been remediated in or gap assessment.
We have established timelines for completing any of the remaining tas, including additional data to bolster analytical compare ability to the legacy dread product.
With greater clarity on our path forward I am confident we can see resubmit the SMB a no later than in Q1 2021.
Importantly, our team is confident about the quality of our filing.
As announced earlier this week, we are delighted to welcome to kill a warning as our new President and Chief Executive Officer effective September eight.
The depth and breadth of his pharmaceutical industry experience fans generics and specialty pharma.
Where he's a proven track record in strategic planning acquisitions product development and commercialization.
He is delivered results throughout his career most recently as CEO of simply USA.
And we're confident that he will be instrumental in executing our growth strategy at a at night.
We also just announced the addition of two talented pharmaceutical executives to our board of Directors Gene Tomo, President and Chief Executive Officer of S.P.I. form.
And Tony Peril.
Former president of par pharmaceutical.
She brings deep experience in foreign operations as well as a breath its pharmaceutical supply chain experience.
Tony strong background in commercial product launch generic sales and marketing strategy and a document a track record of successful acquisitions further adds to the board's definitely experience.
This further aligns our director representation skill set with the company strategy and also reflects our commitment to diversity across Ray race ethnicity engender.
Collectively these three individuals strengthen our capability to manage through challenges and to execute on the business development front and to achieve our desired growth goals.
Finally.
For the benefit of our customers investors patience and other key constituents. We recently overhauled our web site and engaged to healthcare focused Investor Relations agency to manage our shareholder communications program and outreach with investors.
Before I turn the call over to Steve to review the financials I just want to say a few words about the marriage an acquisition recently completed this past January.
It is a annise largest acquisition to date and has increased our commercial portfolio and late stage generic pipeline.
We're pleased with the performance of the marriage input portfolio today, which is running ahead of expectations and we continue to advance the numerous pipeline products acquired in the transaction.
I will note now turn the call over to our CFO, Steve can carry to discuss our second quarter results Steve.
Thank you Pat and good morning to everyone on the call.
This morning, I will focus on high level comments for the quarter.
Net revenues for the second quarter of 2020 were 48.5 million down 5.9 million or 11% from prior year levels, principally driven by significant industrywide declines in prescription activity, resulting from the Kobin 19 pandemic.
Net revenues for generic pharmaceutical products were 33.4 million during the second quarter.
Down 8% from the same period in 2019.
This compares to an overall year over year decline in total industrywide generic prescriptions of 6%.
On a product basis that declines were driven by decreases in is that in my sense is that.
Yes.
Thank the myosin and E M T.
Tempered by the January 2020 edition of the a marriage and portfolio and the September 2019 launch of bank of myosin oral solution.
Net revenues for branded pharmaceutical products were 10.6 million during the second quarter compared to 14 million for the same period in 2019.
Our cost of sales, excluding depreciation and amortization increased by 5.1 million to 20.7 million in the second quarter of 2020.
Primarily due to 1.4 million in cost of sales, representing the excess of fair value over cost.
For inventory acquired in the Amerijet acquisition.
Coupled with an increase in sales of products subject to profit sharing arrangement.
Excluding the 1.4 million of a marriage and accounting impact.
Cost of sales as a percentage of net revenues increased to 40% during the second quarter from 29% in the same period in 2019.
Research and development expenses increased in the second quarter of 20 23 million compared to 5.8 million in the second quarter of 2019.
Primarily due to the non recurrence of 2.3 million of expense related to in process Research and development acquired from co up this pharmaceuticals in the second quarter of 2019.
And a decrease in expense related to the core trophy and re commercialization project.
The impact of these items was tempered by 400000 of severance expense associated with the internal restructuring of the court Tropin team.
Excluding the severance expense. We currently anticipate that the second half of 2020 Cuattro couldn't related R&D expenses will approximate that which were incurred during the first half of 2020 as we continue to advance the resubmission of our supplemental.
No new drug application.
Selling general and it made administrative costs rose in the second quarter of 2020 to 21.2 million compared to 14.2 million in the come comparable quarter in 2019.
The increase primarily reflects 6.5 million of termination benefit expenses related to the departure of our former CEO.
And costs related to the search for a new CEO.
Depreciation and amortization increased in the second quarter of 2020 to 11.2 million as compared to 9.5 million in the comparable quarter in 2019 due to incremental amortization related to the product rates acquired in January 2020 from.
The marriage and.
We also incurred 3.6 million in the build the core Tropin prelaunch commercial inventories, which are expense for U.S. gap.
There was no such comparable activities in the second quarter of 2019.
Net loss for the second quarter of 2020 was 12.3 million as compared to net income of 6.6 million in the prior year period.
Diluted loss per share for the second quarter 2020 was a one dollar and three cents as compared to diluted earnings per share of 53 cents in the prior year period.
Adjusted non-GAAP EBITDA of 15.4 million was down 8.3 million from prior year, principally due to the reduction in net revenues and corresponding gross profit.
As detailed on table for of this mornings press release, our adjusted non-GAAP diluted earnings per share is 69 cents for the quarter as compared to one dollar and 44 cents in the prior year period.
As of the balance sheet, D., we had $27.7 million of unrestricted cash and cash equivalents.
Our cash balance is reflective of 20.9 billion of cash flow from operating activities during the quarter.
And is net of 7.5 million of repayment of Q1 borrowings from the revolver associated with the Amerijet acquisition.
Total net debt as of June Thirtyth 2020 decreased to 164 million as compared to 181.2 million as of March 31st of this year.
This figure represents 2.3 times net leverage on a trailing 12 month basis.
Finally, while we continue to suspend financial guidance in light of the inherent uncertainties of the evolving covert 19 pandemic.
We remain optimistic regarding the second half of 2020.
Presuming that the nationwide cobot 19 trends improve and there is no further disruption to patient physician activity.
We believe that second half 2020 will be more aligned with our internal forecasts for the business, which would suggest the meaningfully stronger second half as compared to first half financial performance.
As an initial indicator our July factory sales were relatively in line with our internal expectations and indicate a returned to pre cove at levels.
In addition, as Pat mentioned, we have been very pleased with the initial performance of the assets acquired from a marriage and earlier this year.
We look forward to continuing to maximize these product opportunities.
From a capital allocation standpoint, we continue to generate healthy levels of positive cash flow from operations and expect to selectively invest in business development opportunities.
Currently 67, and a half million of the 75 million revolver portion of our credit facility remains Undrawn and provides us with flexibility in continuing to pursue further business development transactions in the second half of 2020.
With this.
Ill now open the call for questions.
Operator, Please go ahead.
Certainly at this time, if he would like to ask a question. Please press star one on your Touchtone phone.
He may withdraw your question any time by pressing the pound key.
Once again to ask a question please press star one.
And your first question is from Brandon Folkes of Cantor Fitzgerald.
Hi, Thanks, taking my questions.
[laughter] can you provide some color on your decision to forego type a meeting on coal trade and what gives you confidence yet to take that strategy and secondly, you maybe just on on strategy can you just talk a little bit more Boston strategy going forward or should we expect Judy.
To launch more but how do you have previously acquired with the still being acquisition strategy sounds like it but just any additional color there and then losses the popular just quantify the benefits from.
He.
The American transaction. Thank you.
Hi, This is Pat Walsh I I can take up Steve If you want I can take the the first question about the foregoing of the type a meeting.
So was it was a pretty simple when you looked at the.
The two meetings, leading up to or the two.
Interactions with the agency, leading up to the refusal to file a the data was quite clear of what the FDA expected us to do and we Didnt really feel we needed to go back and ask again.
The information had been provided clearly to us upfront. So when we looked at a the internal and external resources applied to this we felt like we knew what the game plan needed to be and went to work on getting that done and as we mentioned.
We're well over 90% a complete.
Adams identified either within the previous correspondents or with the.
The a the gap assessment.
Teams analysis and feel very confident that we can go forward and the timeline to refile is as described.
I think.
Steve maybe if you want to handle the.
Marriage and transaction in terms of the.
The other question regarding the acquisition status.
I think you know will continue to too aggressively look at other other opportunities you know when you look at the has a solid team here in place the can digest and continue to acquire the.
Kind of assets were looking for the consolidating market is rich right now and and opportunities in fact, I've never seen a more target rich environment.
For this this particular industry and we have the ability to scale and all of the all three of our sectors, whether it be branded generics or contract services. So Phil fruit pretty positive about the opportunities for additional acquisition.
Targets.
Steve you want to take the American.
Question, Yes, sure sure Thanks, Pat and good morning brand and yeah. So as you know Brendan we don't specifically speak to the quantifying the actual sales figures for the a marriage and portfolio, but Uh huh.
As both Pat and I mentioned in the first six months of or ownership of that portfolio. The sales and gross profit performance has been solidly tracking to our expectations and slightly ahead of our expectations for the first six months.
Its it's been a great transaction in terms of diversifying our generic portfolio think directionally.
At this point in time, it's added approximately 12 or 13 commercial products to the portfolio.
And we have a good.
A handful of products in the pipeline that we continue to develop.
Well look forward to introducing a in the future. So it was a very nice tuck in transaction.
At the right time for the company.
And weve been I've been pleased today all of the operational activities that need to occur you know in terms of switching over ownership sales and marketing.
Supply chain management et cetera.
All of that was largely completed in the first quarter.
And so you know we were just able to put leverage that in the second quarter. Unfortunately in the backdrop of you know the covert 19 de stocking that that occurred you know based upon a total prescription activity declines during the quarter.
But we we look forward to the second half of the year has seen a you know the the full strength of the us the amerijet and and more broadly speaking the full way and I quote folio.
Great. Thank you very much.
Thank you. Your next question is from Dana Flanders of Guggenheim.
[music].
Great. Thank you very much further questions. My first one here is just what's the consulting work done on on Retrophin can you provide a little more detail on just the nature of how you are strengthening your filing and so what were the deficiencies identified and just.
Anymore color on on what you weren't doing and isn't that that line of questioning.
I noticed you said there were some analytical data you planned to provide was that ft requested and would appreciate any color on what that data.
It is and then Steve I think in your prepared remarks, you mentioned a stronger second half can you provide some color on just what's driving that I imagine a piece of it is a bounce back from from Cove, it, but but any launches and how you're thinking about the organic portfolio ex amerijet and well.
Be helpful. Thank you.
Hi, Dana.
To answer your question regarding a was the analytical data that has been added requested by the FDA the answer that is no.
That was derived from the leadership teams assessment of.
What we could do to further bolstered the application.
To your question regarding.
Oh specifics on you know what's been done the bolster I think when you look at a refusal to file for almost any application you are going to see most of the information revolving around whats called the CMC section are the chemistry manufacturing controls, which would encompass the analysts.
Nicole.
Manufacturing.
Related processes for for submission of a product like this so that's really where we spent the majority of our time and effort.
It is you know, we havent gone public with any detail obviously from a competitive standpoint, you want to you want to keep your application a quiet from that that standpoint, and also while the interactions are going on going with the FDA, you'd obviously not too that as well so I.
I would tell you that there's been a significant amount of work in progress.
I've been personally involved and in this process with the team. We've we've hired on a prominent group as we as we described who's had a significant experience in these very type of products and feel very comfortable that we'll have an outstanding application to to put forward would be.
With the FDA.
Great and all to answer your all your second question thing and good morning. Thank you for the questions.
Yes, a few inputs on the stronger second half so the foundational piece of it for sure.
Just speed the.
The strength of the portfolio operating in a non who've been keeping a tight backdrop you know as as you're hearing on all of your industry calls in pharma client calls you know whether its framed out as.
A decline in deep driven by de stocking.
In the second quarter or decline you know driven by softness in scrip script activities right. When we look at item mess.
Data for the second quarter versus prior year total scripts for generics were down 6% year over year and for brands about 10% year over year and so that that is the single biggest factor in terms of the softness of the top line a into.
Second quarter and well obviously there is no crystal ball in terms of what the second half is going to bring you know if we presume a that there's.
Less disruption or essentially no disruption to patient physician activity.
We would look to be delivering stronger quarters I'm just based upon that.
And then you layer on top of the fact that our operating plan and our previous guidance before it was withdrawn I'm always was built upon sequential growth throughout the course of 2020 and that was.
You know driven by product launches and the biggest of which was the continued uptake.
Of our vancomycin oral solution product, which was launched back in the fourth quarter of 2019 now that product in particular.
Well it was called out as a favorable in our year over year comps.
You know did get set back in the second quarter as that product. The domain indication is for C. diff, which is largely comes out of folks being in the hospital.
And so the vancomycin market took kind of an outsize step backwards in the second quarter as folks pushed off elective procedures. So we look to see that product start to post sequential gains as well in the second half.
Again, you know driven with an assumption that activity returns to normal elective procedures returned to normal et cetera.
And then I think you had the third leg of your question on the organic portfolio.
And you know you know clearly.
The big three products that we talked about last year.
They took a competitive hit is that a modest into stat and.
Yes, and E. M T. We will start to lap those competitive hits as the second half continues.
So does that in my Simba stat and losses.
Occurred around mid year of last year. So we're kind of will start lapping that impact in the third quarter and yes was a little bit later kind of end of third quarter and beginning of fourth quarter of 2019.
So, we'll we'll lap and those comps.
In the fourth quarter.
Mm <unk> woods, what's the latest of the three so you'll start to see you know relative performance as compared to prior year comps start to improve as those those impacts get further in the rear view mirror.
[noise] Dana further to to Steve's point.
You know I've been in the pharmaceutical industry my entire career and I've never seen enough in one quarter is such a significant drop in hospital and alternate site drug usage across the board. It wasn't a phenomenon with with a and I. It was obviously across the industry. There were married major variations and then.
Centuri management within that distribution network.
The the alternate site.
In surgery centers, just as you know simply close down for the for time being and there were major alterations and traditional buying behavior.
We did start to see a little bit of a reset to that here recently and I'm certainly in July gives us some optimism.
And you know we're hearing you know little little more that the the volume pull through is starting to return back to a.
Normal normal loads. So that's why we're little more optimistic on a go forward basis, but this has been this very very unusual quarter to say the lease.
Thanks for the color.
Thank you we have no further questions at this time I will turn the call back over to Pat Walker for any additional or closing remarks.
Well, we thank everybody for your time today, and certainly as you've heard cobot 19 as affected all of us and I'm sure. When you look at our own lives personally and professionally.
Despite the Pandemics impact on our demand we continue to operate our business and.
We really to look forward to an optimistic future, we welcome the kill and gene and Tony.
Our new CEO and new board of directors, we feel no doubt help us to drive growth and achieve the full value of our assets and continue to spend that span and grow the anti business. So with that we'll close the call and we thank you for your support of our company.
Thank you. Thank you. This does conclude and I second quarter 2020 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.