Q3 2020 ANI Pharmaceuticals Inc Earnings Call

Good morning, and welcome to today's program My name is Nicole and I'll be your conference operator.

This time I would like to welcome everyone. Today, you know I Pharmaceuticals third quarter 2020 on these results conference call.

All lines have been placed on mute to prevent any background noise. After.

The speakers remarks, there will be a question and answer period.

At that time, if you have a question. Please press star one on your Touchtone phone.

As a reminder, this call is being recorded today November 2020.

It is now my pleasure to turn the floor over to Ms., Lisa Wilson Investor Relations for again I Pharmaceuticals. Please go ahead.

Thank you operator, welcome to and I Pharmaceuticals, Q3, 2020 earnings results call. This is Lisa Wilson of insight Communications Investor Relations for an odd.

With me on today's call are an appeal lalwani, our new President and Chief Executive Officer, and Stephen Carey, Chief Financial Officer of anime.

You can also access the webcast of this call through the Investor section of the anti website at <unk> and I Pharmaceuticals Dot 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 companys future performance maybe considered forward.

Looking statements as defined by the private Securities Litigation Reform Act. These forward looking statements are based on information available to and I 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 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 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 and I Pharmaceuticals dotcom.

For the benefit of those who maybe listening to the replay or archived webcast. This call was held and recorded on November 5th 2020.

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 kill Lalwani.

Hi, Lisa.

Good morning, everyone and thank you for joining our call.

It is an honor to be with you today in my role as President and CEO of Pharmaceuticals.

Before we dive into our third quarter results and business update I'd like to express my appreciation.

Central Workers' health care providers first responders.

Shoes, and scientists everywhere for the unstinting efforts during the cold in 19 pandemic.

I'm also grateful for the strong commitment shown by already and 19.

In conjunction with our customers suppliers and manufacturing partners. You can sure have you continued to supply medicines to patients.

Let me also share a little bit about my background, why I joined being nice and some initial thoughts on the nice promising opportunity.

I've been in the health care industry for roughly two decades with the majority of that time spent on specialty pharmaceuticals.

Prior to joining me in our in September I held several roles it simpler.

Most recently I see youre since the U.S. thing, where I oversaw a period of rapid growth.

My experience spans Brenda paradox, generics and CDMO business lines and functionally my responsibilities have included multiyear strategic planning accelerated growth with M&A and business development portfolio development, and commercialization and overall piano and balance sheet optimization.

I've also worked very closely to be a theory on the launch of several complex products.

These broad functional leadership experiences in biopharma or immediately relevant here at 89.

I consider myself to be a growth oriented leader and I'm proud of my track record of building cohesive unproductive teams that deliver results.

All of which I believe align with the N. ours goals.

Which brings me to why I found the right opportunity so attractive.

I see enormous capacity for growth, both organically and inorganically and the potential to build on the core strength of the business.

You know I has a significant opportunity with the core proof in jail.

I will discuss that more in a few moments.

You know I has a diverse portfolio of commercial arts branded and generic products and a robust portfolio off here in the age.

Several of which have limited competition.

We also have a strong north American manufacturing footprint kind of become more valuable and can be leveraged further both for serving commercial customers CDMO clients and the U.S. government.

Manufacturing includes a high potency hormone for somebody in border.

And lastly, do you have a very strong track record in finding accretive inorganic growth.

Branded generics and CDMO deals to support the organic growth.

In my first two months since joining in I I've invested a great deal of time, starting core profit.

And for new rising myself, the intricacies of the supplemental new drug application or SMB.

Based on my observations to date I can confirm that all stakeholders are working toward a successful refiling in Q1 of 2021 kind.

And a subsequent launch.

In addition, ive worked diligently to better understand the drivers of operating performance execution capabilities talent and culture.

I talked to the board that Minnesota facility in person.

Due to covance constraints toward the Opel plant in Canada, virtually I have conducted dozens of one on ones and several some small discussions with RP.

I have also been speaking with our commercial customers CDMO cards key suppliers and other stakeholders.

This has allowed me to get a preliminary or understanding of where we are strong.

Were roommates need to be made and what we need to do to realize the opportunities ahead of us.

And importantly, moving to torque water results and business update we have begun to see some rebound after Q2 in select parts of our branded and generics portfolios.

We reported third quarter 2020, net revenues of $53 million.

Adjusted non-GAAP EBITDA of $17 million and adjusted non-GAAP diluted earnings per share of 97 cents.

You know it has continued to monitor closely the impact of Cobiz related dynamics of our business operations and we have a doctor their plans did.

To deal with its impact.

Steve will share more detailed overview of our Q3 results in a few moments.

Let me turn now to our work on the quarter often gel program.

First on the regulatory process, we are focused on resubmitting, our FNB in Q1 2021.

We continue making significant progress in assembling a robust and compelling package to submit to the FDA in.

In parallel we are working on the operational and commercial readiness for launch.

We remain confident in both the quality of our San Diego filing and our market access demand generation and patient support plans for core profit.

Before I turn the call over to Steve I want to share a few final thoughts as I begin my tenure as CEO.

First I truly appreciate the trust placed to me in this role.

Yeah that was all board members, both the longstanding members and our New Board members, we will be laser focused on driving shareholder returns.

Well share our ambition long term strategy and operational plan along with the full year 2020 results in February.

That said, we are not waiting till February to get started.

As I speak we are evaluating strategic inorganic opportunities working towards increasing the pace of new launches from our Anda Library.

Our manufacturing network further and maximizing value capture from corn products.

And we remain focused on the core profit gel, we filing and commercialization, placing the necessary resources and attention required as a crucial priority for the company.

I'll conclude by saying that I'm excited to be here I believe I bring fresh energy and prospectus to me and I and I will work tirelessly to bring value to our stakeholders to build relationships between you and I and the investment community and to ensure that patients and prescribers have access to our therapeutics with that.

I'll turn the call over to Steve.

Thank you Nicole and good morning, everyone.

Behalf of the entire Eni team, we are very excited to be working alongside Mikael as we continue to build and strengthen and died.

We have already formed a very significant level of partnership and the team is confident as we look to the future.

Turning to the quarter.

Net revenues for the third quarter of 2020 were 53 million versus 51.3 million in the third quarter of 2019, principally due to increases in sales of generic products.

Sales of our generic products were 37.7 million during the quarter up 19% from the same period in 2019, primarily due to the January 2020 launch Migalastat.

So I mean and Palo Parago.

All of these products were acquired from a marriage and and have continued to perform well.

The increases were mainly offset by declines in revenues of is that a month since the start and that's.

Thank the mice and capsules and Methazolamide side.

All of which had increased competition in the period as compared to last year.

Net revenues for our branded products were 12.4 million during the third quarter of 2020.

25% from the prior year period.

Mainly due to lower unit sales of individual XL.

No praying that sell and a decline in revenues of Atokin.

Our cost of sales, excluding depreciation and amortization increased by 5.1 million to 20.1 million in the third quarter of 2020, primarily due to increased volumes related to a negative mix towards generic product.

And increased sales of products subject to profit sharing arrangements driven by the products acquired from American.

Cost of sales as a percentage of net revenues increased 38% during the third quarter of 2020.

From 29.2% during the same period in 2019.

Research and development expenses decreased in the third quarter of 2020 to 2.9 million compared with 5 million in the third quarter of 2019 primary.

Primarily due to a decrease in expense related to core trofim as we begin to complete our development efforts.

We currently anticipate that Cuattro fund related expenses in Q4, 2020 will be moderately higher than those of the third quarter as we continue to focus on our supplemental and D.A. resubmission efforts.

Adjusted non-GAAP EBITDA of 17 million was down 2.8 million from the prior year, principally due to the reduction in gross profit.

As detailed on table four of this mornings press release, our adjusted non-GAAP diluted earnings per share is 97 cents for the quarter as compared to a dollar and 23 cents in the prior year period.

As of September Thirtyth, we had 17.9 million of unrestricted cash and cash equivalents.

Our cash balance is reflective of $21 million of cash flow generated from operating activities. During the first nine months of the year.

And is net of 7.5 million of repayments of Q1 borrowings from the revolver associated with the Amerijet acquisition.

Total net debt as of September Thirtyth 2020 increased to 171.4 million.

As compared to 164 million as of June Thirtyth of this year.

This figure represents two and a half times net leverage on a trailing 12 month basis.

From a capital allocation standpoint, we generate healthy levels of positive cash flow from operations and continue to expect to selectively invest in business development opportunities.

Currently 67, and a half million of the $75 million evolved for portion of our credit facility remains Undrawn and provides us with flexibility in continuing to further pursue business development transactions in the balance of 2020.

We continue to closely monitor the impact of the Corona virus pandemic on our business.

While we did not incur significant disruptions during the three months ended September thirtyth.

We are unable to predict the future impact the COVID-19 pandemic will have on our business financial condition and results of operations due to numerous uncertainties.

With that I'll now open the call for questions. Operator. Please go ahead.

At this time, if you would like to ask a question you may do so by pressing star and the number one on your telephone keypad again, not a star one well pause for just a moment.

The first question comes from the line of Dana Flanders with Guggenheim.

Oh, great. Thank you very much for the questions.

Thank you I wanted to just focus in on maybe two comments you said during your prepared remarks and opportunities that you're getting ready for two of them were accelerating the Oh your anda pipeline.

Bringing those products to market was wondering if you could comment on how big of an opportunity for you.

That is and I guess, what's changed across the broader generic market to allow you to do so are.

Are you seeing more stability and stable competition I'm a competition.

Opening up you know pockets of opportunity.

Then number two you mentioned inorganic M&A I was curious to get your philosophy on leverage and maybe talk around your strategic priorities out of the gate are you focused a little bit more on brands on on generics and kind of what strikes you as particularly attractive as you kind of evaluate the landscape. Thank you.

Yeah.

Thank you Dana sorry, I'll take it into three parts to your question. The first one is on accelerating the the N.D.A.

So we have a large library of about 90, plus the Andes and a pipeline of VNB is through various acquisitions and BD deals.

Several of these products have limited competition potentially higher value.

This is something that we're monitoring on a regular basis.

Both in terms of understanding what's happening with the competitors that are on the market, but also in conversations with our customers and so we're working to prioritize them accelerate time to market for these launches. This is something that I have done successfully in the past and I'll bring that experience here.

He then asked about the overall you know.

Trend on the generic market and I think there's some evidence of improvement.

Slope of the decline.

Oh Colgate has made by who is more conscious of the quality of the supply in addition to price consideration.

Competitive intensity remains high.

There are still good opportunities in the sector.

And with the broad push you know regardless of.

You know.

Who wins the election, which president once the election.

Oh generics will continue to be part of the answer of bringing the cost down of drugs are 80% plus of U.S. volume is in generics.

And there is a significant push on U.S. manufacturing and U.S.

I'm, sorry, and benign is very well positioned to capture that went to almost 200000 square feet of manufacturing footprint of the U.S. and another 100000 square foot of manufacturing footprint in Canada.

When it comes to acquisitions, but the deal environment is very rich, especially those that help us in that enhance our capabilities and scale.

There is definitely more activity right now than there was six to nine months ago, having said that we continue to take a disciplined measured approach to evaluating opportunities that will allow us to now start scaling capabilities and branded products CDMO Enginetics business lines. This includes pursuing.

Both commercial and and pipeline opportunities.

And I think the third part of your question Dana was on the overall in a strategic path forward.

So look as I mentioned in my prepared remarks, some of the process of conducting a comprehensive assessment assessment all drivers of our operating performance execution capabilities talent and culture I'm, putting together a map of where we are strong were improvements need to be made and where the attractive opportunities are in the market for you and I.

I'll share our ambition long term strategy and operational plan along with the full year 2020 results in February.

All right. Thank you.

The next question will come from the line of Elliot Wilbur with Raymond James.

Thanks, Good morning, welcome Maciel.

I'd ask a couple of financial questions just real quickly as Steve specifically could you just maybe walk through some of the.

Components of operating cash flow trends in the quarter looks like cash flow from operations was.

Negative 40 million then not sure I can see all the elements that necessarily lead to that just wanted to get some perspective, there and any early commentary on for Q trends I guess in light of a resurgence of the pandemic in certain areas I know they talked earlier about numbers kind of.

Getting back to pre cobot levels in sequential growth throughout the year I'm. Just wondering if that's still kind of a realistic expectation in the fourth quarter based on what we're seeing currently.

Sure sure good good morning, Elliot and thanks, Thanks for the the insightful questions. So so on the cash flow and just say I think you you misquoted I think you said that it looked like that the quarter was a negative 40 million I think it's it's more like.

400000, or so yeah, our our year to date cash flow generation at [laughter], Yeah, Yeah added <unk>.

Related to the urge to little off.

But that but that's fine that's fine, but it's a it's early yet no nowhere useless that but yeah. It's a good observation so cash flow from ops for the first nine months of the year is essentially equal to cash flow from ops for the first six months of the of the year and the main.

Part of that phenomenon I is really kind of a continued I'll call. It a cash flow hang over from the marriage in acquisitions. So you know, while we purchased a portfolio of currently marketed products right and slotted them directly into.

Into our sales and marketing group and what kind of selling them out of the gate. They won that that portfolio. So even though we do that from a commercial standpoint, it's essentially operating as if we launch those products you know day one on January nine.

That entire portfolio and so you know given given the strengths of the you know that the customers in this environment Ray in the consortiums and certain clauses in terms of you know launch products you do get a delay of cash flow from.

From those quote unquote launches and so I do anticipate that to start turning here as we round the corner into the fourth quarter and certainly as we round the corner into the first quarter of the coming year. So that's the phenomenon there in terms of the fourth quarter trends.

You know look we I think as you see in the sequential numbers today right did the third quarter numbers, we're fairly stronger as compared to Q2.

You know.

You talked about on the Q2 call right and I was not immune to the Cove at 19 impact sales.

They were seeing kind of industry.

Industry wide and you know in.

Likewise manner in the third quarter, we've seen a nice rebound in terms of prescription volume sequentially.

But you know, it's it's still not to the levels of pre covert dying teen levels and so the wild card right as everybody looks forward to the fourth quarter is how does COVID-19, you know developed whether it's in pockets across the U.S.

Or you know more nationally.

You know obviously, we're all hoping that that does not occur, but that's clearly the wild card for the industry.

And by extension, it's the wild card for for a nice so barring any significant trends. There you know we we remain optimistic as we look out to the the next couple of quarters here, but.

No. We're we're always going to be cautious given the the evolving COVID-19 situation.

Okay. Thanks, and then just a couple of questions for you is as well just you don't want to get a sense of your perspective of sort of the relative opportunity set the company has in front of it in terms of being able to reintroduce.

You know various.

Pipeline ascertain days had been acquired over the years and whether or not you know that in and of itself would be sufficient to drive growth in the in the short term I mean, obviously financial markets seem to value. The company in line with you know other larger generic companies that frankly have declining businesses and and you know.

Real prospect of turning those around so just want to get your perspective on on whether or not you think that you know there is a there is a.

A positive growth outlook here in the short term based on assets in the books or maybe transactions that are kind of at a later stage of evaluation versus having to actually go out and buy assets to drive growth in the business.

No. Thank you Elliot so look I think in terms of growth driver is a core profit gel is a is a crucial opportunity for the company. We are preparing what we expect will be a robust package ready for re falling in Q1 of 2020.

One and a subsequent launch so I think that would be growth driver number one.

I think you know.

The other areas of growth, which are important to consider is number. One is you know leveraging the increasingly important U.S. and North America manufacturing footprint, including the hormone for somebody that we haven't bought that so this is a manufacturing network that we can leverage a lot more given the.

[noise], increasing important and value that is being assigned to U.S. manufacturing.

As we spoke about before the value capture from.

Bringing accelerated new launches from our portfolio any ideas in our pipeline and library, especially those with limited competition is will be an important step and maximizing the value capture from our existing branded and generics assets.

And the CDMO clients I mean, remember we acquired or.

The American business and a you know a number of those products were launched this year there.

There's still opportunity to to deliver more share and revenues from some of those products and so that's something that we will look to continue doing.

And look you know even prior to me showing up and I has done a tremendous job of doing.

You know very thoughtfully and disciplined executed deals.

Oh I'm, so we continue to evaluate strategic inorganic opportunities.

To enhance the scale and capabilities in all three segments brand products generics and CDMO businesses.

Okay, maybe Nick you if I could just follow up and ask your question with respect to kind of where do you see sort of the the best relative opportunities in terms of.

In terms of a discretionary capital deployment, whether it be pure generic assets branded assets five or five b, twos, obviously or or all of the above and I guess the question as you know the company historically has done a very good job of doing you know high ROI she deals in the branded.

Arena, you know buying products that generate significant returns, but necessarily you don't necessarily have to have any.

Growth associated with them. So just wondering how you're kind of viewing those opportunities vis vis what you know what seems to be sort of an increasing demand from from financial markets for for evidence of a of a.

Growth versus just a high ROI see metrics.

Yeah that's.

That's a good question Elliot I think a couple of responses. One is these are good questions that I'm evaluating as I mentioned previously our share our ambition long term strategy and operational plan along with the full year 2020 results in February So I will do that and then you know.

As I mentioned in the prepared remarks, I am a growth oriented leader and so you know I oversaw a period of rapid growth in as CEO of simply U.S. that.

That's how I am oriented.

And its fortunate that the markets reward that too. So I do plan to continue that strong track record of delivering results delivering girl and the path to that I will share a you know oh, along with our full year 2020 results and the relative I think to your question is you know allocation of capital and allocation of reach.

Sources between the business line.

I will share more about that in a time when we share the full year 2020 results in February.

[noise] Okay. Those are my questions. Thank you.

[noise] as a reminder to ask an audio question you may do so by pressing star and the number one on your telephone keypad.

The next question will come from the line of brain in bulk.

With Cantor Fitzgerald.

Hi, Thanks for taking my question and congratulations on your equipment and you talked about the manufacturing footprint can you just give some color in terms of your capacity utilization in those facilities and is it fair capacity or should we think about you replacing current paired lines that maybe.

Higher value line, there and then secondly, and as Steve talked about the your Undrawn revolver right now how do you feel about your financial flexibility to execute on M&A as well as potentially invest behind the kwik trip and launch next year. Thank you.

Yeah.

Thank you Brendan I think.

There was two questions you asked I think the.

First one was on the manufacturing capacity.

Happy to share with you that there is a capacity available across all three sites.

Both the sites and bought that as well as the site no pull Canada. So when we talk about leveraging the manufacturing network, it's by Hum increasing the utilization.

And there's no material opportunity there.

Obviously, we have to work through how to operationalize and capture some of those opportunities, but there is.

Opportunities to to drive growth by leveraging that manufacturing network further.

And then you know coming to the.

To the capital allocation I'll start with then Steve if you want to jump in if we take to continue to take a disciplined measured approach.

To you know where to allocate the capital across the different areas, regardless as regards to core profit uncork profit as a crucial priority 49.

And we have appropriately dedicated our response it resources to advance this product and plan to continue doing so.

As you are aware that we are at all.

You know getting ready for a robust full.

Full sndk submission in Q1 and in parallel we started working on operational and commercial readiness for the launch right. This includes market access demand generation and patient support plan.

So you know absolutely core profit is a crucial priority opportunity for it.

Yeah, and I'd like to add.

Sure Yeah, I'll just add to that.

Clearly you.

You know on the M&A front.

You know clearly you'll continue to see kind of the diligence and the discipline in terms of balancing the opportunities with the you know what the balance sheet discipline and not getting too far over our skis in terms of leverage profile I think within that range and kind of what you've historically seen.

And I do is you know to pursue assets that our EBITDA generating right and so whether that's in the form of continued portfolio tuck ins or something broader that that starts to enhance immunized.

Organizational and structural capabilities Oh.

I think in the sales is it's always going to be.

Towards with an eye towards EBITDA generating and cash flow generating assets. So.

So that that that's that's part of the balance there Brandon you know and obviously as as embedded in your question and then as they kill says right Port Trophy and we're laser focused.

Not only on the regulatory filing and and pushing that to success, but also read the readying. The organization for you know the the efforts that will be required to successfully launch that product and so you know that that's part of the plan to do.

They were evaluating but I would point out in terms of capital allocation you know, we would not starting from zero dollar spend there you know you've seen in 2020, the company invest behind prelaunch inventories.

You know roughly right big picture little bit over $8 million year to date and on a full year basis, you know we have a.

I think the forecast of between 11 and 15, depending on how the timing of certain shipments fall and break around December 31st rate. So some of that spend will not need to be replicated.

In advance of the launch rates. So we will be able to allocate some of that spend towards the the sales and marketing efforts and build from there.

Steve one follow up if I might add that 8 million you referenced in terms of inventory.

Is that across the portfolio or was that kwik trip and.

Oh, that's cool Tropin specific rights. So so it's 2020 is kind of you know building pre launch inventory. So I'm not saying there will be zero of that in 21, but you know I would expect that to moderate as we start to pivot towards a S. DNA.

Type activities.

And then maybe just following up on that and what are the shelf life of your core troponin product I think I call. It 18 months, but just any color on your shelf life would be great. Thank you.

Yeah, let me take that Steve.

Sure.

So no [laughter] I didn't know what to say exactly the same thing that.

So as Youre as you're aware as you will appreciate that from a competitive standpoint. It is best for us not to share specifics of this information right. Now you know we're confident of the quality of our filing under you know and the quality of our products and and also this is with the FDA or will.

With the FDA and the ft. It gets to a JV adjudicate that so are we would prefer to not share specifics on on that right now.

Okay.

Fair enough I appreciate that thanks, very much a mountain.

Thanks Brendan.

With that we are showing no further audio questions I will now.

During the call.

Right.

Yeah. Thank you all for your time today. This is Nick Hiller again, I appreciate the opportunity to lead and I look forward to getting to know many of you personally to invigorating, our regular cadence of communications and you're taking full advantage of the core strength of our business I have every expectation that as we enter this new.

Chapter, we can achieve great things and deliver value to our shareholders and in these uncertain an unprecedented times. Please take care of yourself and your families and friends and Stacy. Thank.

Thank you for your support.

This does conclude today's conference call.

Thank you.

We appreciate your patience.

Absolutely.

[music].