Q4 2023 ANI Pharmaceuticals Inc Earnings Call

Participants

Gary Nachman; Analyst; Raymond James & Associates, Inc.

Vamil Divan; Analyst; Guggenheim Securities, LLC

Leszek Sulewski; Analyst; Truist Securities, Inc.

Presentation

Operator

Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. fourth quarter 2023 earnings results call. (Operator Instructions)
And please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Judy Clemente, Investor Relations for ANI Pharmaceuticals.

Thank you, and to us, welcome to A. and I. Pharmaceuticals Q4 2023 earnings call. This is Judy DiClemente of In-Site Communications, Investor Relations for ANI. With me on today's call are Niccolo Lange, President and Chief Executive Officer, and Stephen Carey, Chief Financial Officer. You can also access the webcast of this call to the Investors section of the ANI website at w. w. w. dot ANI Pharmaceuticals.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, and 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 or the archived webcast will be available on our website, www.ANI Pharmaceuticals.com for the benefit of those who may be listening to the replay or archived webcast this call, this call was held and recorded on February 29, 2024 since then, and I 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 Nicole one. Achal?

Thank you, Judy. Good morning, everyone. Thank you for your interest in E&I pharmaceuticals and for joining our fourth quarter earnings call. First I want to thank our customers, suppliers, partners, investors and the entire E&I team for their collaboration and significant contributions in delivering on our company's purpose of serving patients, improving life,
A strong fourth quarter capped off a record year, and we finished 2023 with $486.8 million in total revenue, an increase of 54% over 2022. Adjusted non-GAAP EBITDA was a record $133.8 million, up 140% year-over-year. And adjusted non-GAAP earnings per share was $4.71, an increase of 246% from 2022.
Total revenues for the fourth quarter were $131.7 million, an increase of 40% over the fourth quarter of 2022. Our lead rare disease asset purified Cortrophin Gel, generated $41.7 million in this quarter, a year-over-year increase of 137% and a sequential increase of 40% from Q3. For the full year, Cortrophin generated sales of $112.1 million, representing year-over-year growth of 159%.
I continue to be tremendously pleased by the effort and output of our rare disease team in building our Cortrophin Gel franchise. New patient starts accelerated during Q4 with the strongest sequential quarter 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 TH. for several years. Our world-class rare disease sales and marketing team continues to grow the overall ACTH market and overall awareness of ACTH treatments in the US 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 US is significantly lower today than it was several years ago since the launch of Cortrophin Gel in the first quarter of 2022, the overall category ACTH category has experienced seven consecutive quarters of year-over-year growth and the outlook for the category remains robust.
Let me share commentary on performance across specialties. Cortrophin demand growth continued across our specialties, targeted at the launch targeted at launch, which were rheumatology, neurology and nephrology.
In the second quarter of 2023, we expanded into pulmonology and we quickly gained momentum in this therapeutic area during the fourth quarter with positive physician responses and growth in new cases initiated and new patient starts.
Let's turn next to Galp's. Cortrophin Gel is the only ACTH product indicated for the treatment of acute gallery arthritis flares. During the quarter, we launched a new one ml vial size of Cortrophin gel for the Corp. For the treatment of acute carry arthritis flares. Physicians can now administer Cortrophin Gel 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.
As we look ahead to 2024, we expect Cortrophin revenues to grow 52% to 61% to $170 million to $180 million. We believe we are early in the trajectory of Cortrophin Gel, and we'll continue to invest behind the franchise to drive greater adoption across current 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 the therapeutic area, we continue to expand our disease state coverage by adding a small targeted sales force in ophthalmology.
This is a specialty for ACTH. prescribing has gained traction over the past few years. We believe ophthalmology could be a meaningful growth contributor for Cortrophin. We are collaborating with top physicians and scientists to better delineate Cortrophin Gel activity and mechanism of action and help guide treatment decisions.
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 health care providers who treat expanding the scope and scale of our rare disease business through M&A and in-licensing remains a high priority.
We are currently evaluating opportunities with a focus 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 Yes.
Turning now to our generics business, which delivered another strong quarter, we generated $71.8 million 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 a nice exceptional new product launch execution, operational excellence and US-based manufacturing footprint to achieve this growth.
For the full year agenda, our generics business generated sales of $269.4 million, representing year-over-year growth of 28%. Three key factors will enable our generics business to continue delivering robust growth.
First, our high-performance R&D team. In 2023, we delivered 11 new product launches and 20 new product filings. In addition, we retain the number two ranking for competitors, Terabeam cobalt. Second, our strong operational backbone and US-based manufacturing footprint.
During 2023, we supplied over 1.5 billion doses of therapeutics for 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 preapproval and a pharmacovigilance inspection with the FDA with zero observations.
Third, our systematic and relentless approach to reducing costs, whether it be for raw materials, finished goods or corporate spend. Overall, our generics business remains an established and reliable partner of choice are 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 the high gross margin, low working capital and strong cash flow generation business. 2023 was a record year for ENI, and we're already off to a strong start in 2024. 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 fourth quarter financial results in more detail and discuss our guidance for 2024.

Thank you, Niko. And good morning to everyone on the call. We posted another strong quarter to close out 2023 with fourth quarter revenues of $131.7 million, up 40% over the prior year period. Revenues from Cortrophin Gel reported in our rare disease segment were $41.7 million, up 137% from the prior year and 40% from the third quarter, driven by increased volume.
Fourth quarter revenues in our generics established brands and other segments were $89.9 million, an increase of 17% over the prior year period. Within this segment, generic revenues for the quarter were $71.8 million, an increase of 24% over the prior year period and 2% over the third 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 $18.1 million in the quarter, a decrease of 3% from the prior year period driven by lower volume performance was in line with our expectations as described on the third quarter earnings call. When we noted that the market conditions for specific molecules, It recently changed.
Cost of sales, excluding depreciation and amortization, increased 47% to $53.4 million in the fourth quarter 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%, a decrease of approximately 200 basis points versus the prior year, primarily due to unfavorable products mix.
Research and development expenses increased 89% to $9.9 million in the fourth quarter 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 $44.5 million in the fourth quarter of 2023, primarily due to increased employment related costs, rare disease sales and marketing costs, legal expenses and patient assistance program costs, as well as an overall increase in activities to support growth.
Net income available to common shareholders for the fourth quarter of 2023 was $0.7 million as compared to net loss of $4.7 million in the prior year period. Fourth quarter diluted GAAP earnings per share was $0.04 as compared to a $0.28 loss in the prior year period.
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 fourth quarter of 2023 was $30.2 million, an increase of 29% over the prior year period.
From a balance sheet perspective, we ended the quarter with $221.1 million in cash balances, net of $12.5 million of contingent consideration paid to selling shareholders of Navidea. In the fourth quarter, we generated cash flow from operations of $44.7 million during the fourth quarter and the full $119 million for the full year, we have $294 million in face value of outstanding debt, which is due in November of 2027.
At the end of the fourth quarter, our gross leverage was 2.2 times, and our net leverage was approximately a half, a turn of our trailing 12 months adjusted non-GAAP EBITDA of $133.8 million.
Turning to 2024 guidance, we expect total revenue of $520 million to $542 million, which represents growth of 7% to 11% over 2023 for Cortrophin Gel, we expect revenue to be in the range of $170 million to $180 million, 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 first quarter due to prescription reauthorizations, followed by a strong return to growth in the second quarter 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 competitors, supply shortages, which were a tailwind in 2023, our established brands, given our performance in the first two months of the year, we believe that revenue in the first quarter of 2024 will be higher than that achieved in the fourth quarter of 2023. Despite that, we expect that the significant tailwind driven 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 we are currently seeing beyond the first quarter the year.
Moving down the P&L, we expect total company non-GAAP gross margin between 62% and 63%, which reflects modest erosion relative to 2023 due in large part to product mix. 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 2024 and expect total operating expenses to grow essentially in line with revenue growth and below 2023 expense growth contemplated in our guidance is increased investment in R&D to fuel generics growth through new product launches, along with further strengthening of the Cortrophin Gel franchise through the initiatives that Mikael 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 million to $145 million and adjusted non-GAAP earnings per share between $4.26 and $4.67 in 2024.
We currently anticipate between $19.3 million and $19.7 million 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 US GAAP effective tax rate to be between 20% to 22% as compared to 5.5% in 2023. The company will continue the tax effect adjustments utilized in the computation of its adjusted non-GAAP diluted earnings per share using our estimated statutory rate of tax of 26%. So we will now open up the call to questions. Operator, please announce the instructions at this time.

Question and Answer Session

Operator

If you would like to ask a question, please press star one on your telephone keypad or you may remove yourself from the queue at any time by pressing star two. Once again, that is star-1 to ask a question.
Gary Nachman, Raymond James.

Gary Nachman

Hi, guys. Good morning and congrats on all the progress. First on Cortrophin, the 2024 guidance, just how much market growth are you assuming versus share gains from any changes in net price anticipated over the course of the year?
And what therapeutic areas you think should be the biggest contributors, I guess, looking out into this year since the guidance look pretty solid. And then just in terms of looking at additional rare disease assets, just talk about the market, Mikael, and how many different opportunities you're looking at currently, mostly in your current therapeutic areas? And are you 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?
Thanks.

Yes, thank you, Gary, and thank you 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. CAR treatments, of course, for appropriate patients is significantly lower than where it was a few years ago. The outlook for the category remains robust.
And as you've seen there, we have had seven 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.
Second, your question on price, we tried to find a balance between sharing information that assist the investment community while not giving away competitively sensitive data publicly, as you will see that both our competitor and we took a 3% price increase on January first, 2023.
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 we see momentum. Ophthalmology is clearly new, but we've seen momentum across these therapeutic areas as we have reported record number of new patient starts and new cases initiated in the fourth quarter of 2023. We see that momentum continuing in the first quarter and throughout 2024. And we also have seen growth across the therapeutic areas. So no one therapeutic area to start to signal to sort of point out.
Your second question was on M&A. We are we have been looking for assets for some period of time, we are again trying to find a balance between sharing information that's helpful to the investment community was of takeaway assets that have data in this case to the company.
So we're engaged with, but there are companies that were engaged with multiple ones, and they are both ones that they are aligned with our turn 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 I mentioned earlier, expanding the scope and scale of our rare disease business through BD and M&A remains a high priority for the Company.
Thank you, Gary.

Gary Nachman

Great.Thank you so much.

Operator

Vamil Divan, Guggenheim Securities.

Vamil Divan

Hi, this is Daniel on for Volvo. Thanks for taking my question. So far, based on our analysis of script trends for Q4 yes, that controlled themselves 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 are recaptured in my queue via what is more like a pricing dynamic with improvements seen in that price?
And then a second question is more on the expense side. So I appreciate your overall commentary on what you maybe expect in 2024. Then maybe you can give a little more detail on the breakdown between like SG&A and R&D going forward.
Like how do you expect the growth in the business to be more growth in one versus the other? I think there would be helpful.

Thank you, Daniel, and good morning and thank you for joining the call. Look, John, in your question on Q4 Cortrophin performance versus what was what but the IQVIA data is showing for US revenues trended ahead and will continue to trend ahead due to increased volumes are 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, Scout and now ophthalmology.
And then your second question regarding expenses. We will continue to invest in our key growth initiatives in 2024. And as Steve had mentioned, we 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&D. It fueled the generics growth by our generics business is larger. So we're investing you 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.
And we've also talked about increased spending on the Cortrophin side to be able to expand and that franchise, the Cortrophin Gel franchise where we are adding sales team members and marketing and sales efforts in our newer specialty areas of pulmonology, ophthalmology and Joe, we're further strengthening the patient support and operations to support future growth.
And there's also modest R&D spending for Cortrophin on collaboration with top physicians and scientists to better delineate Cortrophin Gel 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.
And you also asked about what's the specific, what is it more in one area versus another. And I think we're investing in both the Cortrophin related initiatives as well as the no additional R&D spend do to support the generics business.
Thank you, Daniel.

Vamil Divan

Great. Thank you.

Operator

Leszek Sulewski, Truist Securities.

Leszek Sulewski

Hi, this is Jamie on for Les. 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 the early launch metrics from the one milliliter dose.

Thanks. Yes, good morning, and thank you, Jeremy, and thank you for joining our call. I think you asked three questions. One was on pulmonology. So on pulmonology, as we had mentioned, we are seeing traction. Our increased number of new patient starts, increased number of new cases initiated and positive physician response.
You've seen the momentum that we have from the from the first region where we had added a smaller sales force in the second quarter of 2023. We're adding a 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 specialties.
You also asked about the one ml vial and get the gal's therapeutic area. We are optimistic about the potential for our Cortrophin gel for this indication. However, it is early in the launch and we look forward to sharing updates in the future.
As far as market resolutions and overall market dynamics, the overall macro, our brand of supply related tailwinds continues. Having said that, what is contemplated in our guidance is for generics. We have not contemplated if 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 first quarter of 2024.

Leszek Sulewski

Thank you.

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.

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.

Operator

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