ANI Pharmaceuticals' (ANIP) CEO Arthur Przybyl on Q2 2014 Results - Earnings Call Transcript

Aug. 4.14 | About: ANI Pharmaceuticals, (ANIP)

ANI Pharmaceuticals, Inc. (NASDAQ:ANIP)

Q2 2014 Results Earnings Conference Call

August 04, 2014 10:30 AM ET

Executives

Arthur Przybyl - President and CEO

Charlotte Arnold - Chief Financial Officer

Analysts

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ANI Q2 2014 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Arthur Przybyl. You may begin.

Arthur Przybyl

Good morning everybody, and welcome to ANI’s earnings conference call for the second quarter of 2014. My name is Art Przybyl, I'm the President and CEO and with me today is our Chief Financial Officer, Charlotte Arnold.

Before we begin, I would like to refer everyone to the forward-looking statements language in this mornings' press release. And ask each of you to review it carefully as important context for this conference call.

Discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principle. Reconciliation of those non-GAAP financial measures to the most directly comparable financial measures can be found in our earnings release dated today.

For the first time, since ANI has been a public company, we are providing revenue, non-GAAP adjusted earnings per share and non-GAAP adjusted EBITDA guidance. For the second half of 2014, we are guiding our net revenues in the range of $28 million to $30 million, our adjusted non-GAAP earnings per share in the range of $0.90 to $1 and our adjusted non-GAAP EBITDA in the range of $14 million to $15 million. We feel our revenue, cost of sales and operating expense estimates are now predictable enough to allow us to provide guidance.

As such this guidance includes our recent accretive transactions for Lithobid and Vancocin, but does not include the impact from any additional product launches which may occur in the second half of 2014.

Recently, we expanded our mature brand product offerings from 2 to 4 products with the acquisitions of Lithobid and Vancocin. We have already launched the Lithobid product with the ANI label. And following a short transition period during which ANI will receive sales proceeds, we will launch our own ANI-labeled Vancocin product.

As part of the Vancocin purchase, we also acquired ANDAs for both the injectable and solution Vancomycin product versions and we will explore the potential for launching these drugs at a future date to be determined.

Combined, the Lithobid and Vancocin acquisitions are expected to generate $9.4 million in annual revenues and $8 million in annual non-GAAP EBITDA. We invested a total of $23 million in these two mature brands and we consider mature brands an important part of our business strategy, providing high margin cash flow and diversification of our revenue and earnings. We will continue to selectively pursue these opportunities.

Our four mature brands are expected to contribute over $12 million in annual revenues. Our generic product pipeline now consists of 49 products and continues to advance. During the quarter, we filed an ANDA for our first anti-cancer product and requested an FDA expedited review since the product currently has no generic competition and no blocking patents.

In addition, we have established an exclusive licensing and supply agreement for the active raw material for the filed product. We expanded our generic drug agreement with Sofgen and entered into a new agreement for generic drug with Dexcel. In both cases, ANI will be the marketing partner for the products involved. We expect to launch our first Sofgen and the Dexcel product within the next 12 months.

Our recently acquired Teva ANDA products are advancing through our internal tech transfer efforts. And we are anticipating the launch of the first two Teva products in the late fourth quarter of this year and a third product in the first quarter of next year.

One of the products expected to be launched this year is currently in short supply and has recently seen a price increase applied to the current marketed product. In the second quarter as expected our revenues, net income and adjusted non-GAAP EBITDA were affected on a dollar-for-dollar basis because of the $3.9 million charge due to income contractual obligations associated with our EEMT price increase that was implemented in mid April.

These charges have been fully absorbed and current sales of EEMT are now realizing the full benefit of that price increase. Our current market share for published prescription data is approximately 50% to 60% and we expect our share to remain at these levels while competitive product supplies are exhausted.

Based on our current estimates, we expect that to happen in late 2015. For now, we forecast our EEMT annual revenues to be in the range of $30 million to $35 million. For perspective, first quarter 2014 annualized run rate EEMT revenues were approximately $21 million at a time when we experienced no competition. Our current EEMT forecast is 43% to 67% higher than our first quarter annualized run rate.

I will now turn the conference call over to our Chief Financial Officer, Charlotte Arnold, who will discuss our financial results.

Charlotte Arnold

Good morning everyone and thank you for joining our conference call to discuss ANI’s second quarter financial results for 2014.

As previously discussed on our first quarter earnings call, we implemented a price increase in April for our EEMT product, which resulted and $3.9 million in charges for contractual price protection obligations and reduced our net revenues and net income on dollar-for-dollar basis during the quarter. EEMT pricing is now in line with that of other hormone replacement therapy drugs and the net revenue, adjusted non-GAAP earnings and adjusted non-GAAP EBITDA guidance that we are providing today for the second half of 2014 reflects the impact of that price increase on our EEMT sales.

We also noted on the prior earnings call that we expected to realize a substantial increase in our non-cash stock compensation expense during the second quarter. At our annual meeting in May, our shareholders approved an expansion of the authorize shares under our stock incentive plan, which in turn allowed us to issue to our employees approximately 325,000 options previously approved by our Board of Directors in July and August of 2013. As a result of the $2 million in non-cash stock compensation expense we recorded during the quarter, $1.3 million was a catch up charge. For the remainder of 2014 we expect to record approximately $700,000 per quarter in non-cash stock compensation expense. Consistent with our practice in previous quarters, we will continue to add back stock compensation expense to operating income when calculating adjusted non-GAAP EBITDA, a measure that we believe is an important financial indicator of our operating performance. We have added back expected future stock based compensation expense to arrive at the adjusted non-GAAP EBITDA and adjusted non-GAAP earnings guidance that we provided today.

Turning now to our financial performance during the second quarter of 2014, we reported net revenue of $6.6 million, an increase of 8% from $6.2 million in the prior period. As I noted earlier second quarter revenues were reduced dollar for dollar by the $3.9 million in charges related to our price increase for EEMT. Our cost of sales decreased as a percentage of net sales from 35% to 32% primarily due to price increases for EEMT.

Research and development costs were $0.9 million and $0.4 million for the three months ended June 30, 2014 and 2013 respectively. The increase was due work on new development projects including Teva products, new collaborations with Sterling Pharmaceuticals and Sofgen and a tackling fee for the ANDA submission of our first anti-cancer drug for which we requested an expedited review.

Selling, general and administrative expenses decreased to $5.4 million for the three months ended June 30, 2014, from $7.2 million in the prior year period. The decrease was primarily due to the lack of $4.8 million of merger-related expenses incurred in the second quarter of 2013, partially offset by increases in personnel and consulting, legal, and other fees related to becoming a public company, as well as $2 million of non-cash stock compensation expense.

Net loss was $2.4 million for the three months ended June 30, 2014, as compared to a loss of $4.6 million in the prior year period. Diluted loss per share for the three months ended June 30, 2014 was $0.21, of which $0.18 related to non-cash stock compensation expense during the quarter.

In our earnings release today, we provided financial guidance for the second half of 2014 based on our current estimates of market shares and pricing for each of our products, our cost of sales and our operating costs.

We estimate that our net revenues will be between $28 million and $30 million. We expect our adjusted non-GAAP earnings excluding non-cash stock compensation expense to be between $0.90 and $1 per share assuming 11,312,582 shares outstanding. We estimate that our adjusted non-GAAP EBITDA excluding non-cash stock compensation expense will be between $14 million and $15 million. And we estimate that our effective tax rate for the second half will be 15% which includes the impact of utilizing our NOL carry forwards to offset our pre-tax income.

Our guidance includes the benefits from our Lithobid and Vancocin products that we acquired in July and August 2014, each of which we expect will significantly diversify and expand our revenue and earnings. In conclusion, we’re pleased with our significant progress over just 12 months as a public company.

At this point, I will turn the call back over to our President and CEO, Art Przybyl.

Arthur Przybyl

Thank you, Charlotte. In summary, we’re very pleased with the progress that we’ve made since becoming a public company last June. Through a focused acquisition and product development effort we’ve significantly expanded our product pipeline to 49 products. Following the successful capital raise in March of this year, we deployed $23 million to acquire two mature brands that expand our marketed product portfolio while diversifying and growing our revenue and earnings base. As such, we expect our business to generate $28 million to $30 million in revenues, $0.90 to $1 in adjusted non-GAAP earnings per share and $14 million to $15 million in adjusted non-GAAP EBITDA in the last six months of 2014.

I will now open the conference call to any questions that you may have.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Your first question comes from the line of [Scott Henry].

Unidentified Analyst

Thank you and good morning. Just a few questions; I guess for starter, just from the modeling standpoint. Could you tell me how -- what was the revenue number for EEMT approximately in the quarter?

Arthur Przybyl

I cannot, because I actually have to back out the credits from that number. And I don't have that number with me today, unless Charlotte does. Charlotte, do you have the net revenue number after credits or EEMT?

Charlotte Arnold

I do not at my fingertips, no.

Unidentified Analyst

Okay. I am sure I can roughly approximate it.

Arthur Przybyl

Scott, we'll get back to you.

Unidentified Analyst

Okay. Perfect. More importantly, the Vancocin transaction, looks like a very favorable price for the company, it looks like it should really help build out the income statement. a couple of questions; how do you expect to amortize that? I mean I would assume over 10 or 11 years that what we should model in?

Arthur Przybyl

Charlotte?

Charlotte Arnold

I think so Scott, yes, 10 or 11 years.

Unidentified Analyst

Okay. And then I thought your comments on the solution were particularly interesting as a potential growth opportunity. Could you talk about what needs to be done to bring that product to the market, given that the ANDA is already proved and how should we think about the revenue potential there?

Charlotte Arnold

So to bring the product to the market, we certainly have to take a look at the ANDA, understand the formulation, and then do the same practice that we've done for the Teva products, which is a tech transfer process.

As far as expected revenues from potential solution product, that's a little bit more difficult to project than your typical generic product that’s been launched before. And the reason for that is because the Vancomycin solution has never been launched in the marketplace before. So number one, we would be creating a market. And number two, I know it's our belief that somewhere between may be 3% to 5% of the market would potentially be a candidate for a solution; in other words, those folks that cannot swallow the capsule product and are candidates for a solution. But we have no projections for revenues for that product at this particular point in time.

Unidentified Analyst

Okay, that's helpful. And now with regards to the tech transfer process, how complicated is that for this product? I know Vancomycin has been a somewhat challenging product in the past, but I just want to get a sense of the difficulties in doing that?

Arthur Przybyl

So let's just focus on the injectable product for a second. The company will need to find the contract manufacture who has lyophilization capabilities for the product and we'll embark on a tech transfer process with that contract manufacturer and eventually be delivered finish doses from product. The fact is the ANDA that we purchased has the appropriate cycle time in order to -- in essence freeze dry the liquid into lyophilized form and so it should be fairly straight forward Scott. I think it’s identifying and moving forward with the contract manufacturer that’s really the most important part associated with re-launching that ANDA.

Unidentified Analyst

Okay, great. And then the final question, on the two Teva products, you mentioned one is recently one that’s had a price increase. The question is how significant could that product be? I guess one way to think about it is when you think as a whole basket of Teva products right now, does that look like one of the most promising in that basket?

Arthur Przybyl

I think I would like you to hold that question until we have our third quarter earnings quarter conference call. And as we get closer to launch of that product, we’ll have a better understanding as to where the market dynamics are and perhaps provide some insight into what we feel the potential revenue and cash flows from that product could be for the company.

Unidentified Analyst

Okay, fair enough. Well, thank you for taking the questions.

Arthur Przybyl

Thank you, Scott.

Operator

The next question comes from the line of [Rohan Banjani].

Unidentified Analyst

Hi, Art and Charlotte. Thanks for taking the questions; congratulations on the acquisition. Just follow-up from Scott’s question on the injectable Vanco that’s not possible to produce that hard to manufacture that in your Baudette facilities that requires an injectable specialized facility?

Arthur Przybyl

Yes. All injectable, I want to say all. But injectible products are aseptically processed; in other words, in sterol process from start to finish. This product also requires what a process called lyophilization where you are in essence freeze drying a liquid product into lyophilized product. And so no, we will definitely have to seek a contract manufacturer. Our facilities are not aseptically processed facilities for pharmaceutical products.

Unidentified Analyst

Okay. And then once that process is done that you find that CMO, the tech transfer process would take 30 or so days?

Arthur Przybyl

No, no.

Unidentified Analyst

It might be longer.

Arthur Przybyl

Just as long as it does for the Teva products at least. So five years of process validation, requires potentially some development work, some dead batches. It requires us filing what’s considered to be a CBE-30 with FDA, as changes being effected in 30 days. And so after all of that, you can launch the product. I would assume the tech transfer process takes anywhere from minimum of six months to nine months in time.

Unidentified Analyst

Okay. I think I was just confusing the CBE-30 portion of that. And then any idea what the margins would be on the injectable vancomycin?

Arthur Przybyl

Margins yes, we certainly can determine margins from current market pricing. But I have a long standing history with the product, both the injectable and obviously the capsule version. The injectable products, typically the lower strength tend to be lower margin items, but the 10 gram a piggy back strength is where the money is made, that's the higher margin product.

Unidentified Analyst

Okay. And then for the solution, what do patients use now today, just put the injectable into patients mouth for oral?

Arthur Przybyl

Well in years past, when one of companies was significantly raising price on the branded capsule product before generics were approved. There were actually some hospitals that were dispensing the injectable and having patients drink that. That was more in my opinion related to what was becoming an exorbitant price for capsules.

Unidentified Analyst

Okay. That’s fine.

Arthur Przybyl

So, again this the solution product has never been launched in the market and that will require a little bit more thinking on our product as to how to position that product in the marketplace, get the word out in terms of marketing that product that’s available and there are some rules of thumb that speak to a certain percentage of the market that can swallow pills or capsules that potentially could be candidate patients for this product.

Unidentified Analyst

Okay, great. And I missed the commentary on the timelines for the Teva products. There was two products in 4Q and then one product in 1Q, is that right 1Q ‘15? I am sorry.

Arthur Przybyl

That is correct. Yes.

Unidentified Analyst

Okay. Okay, great. And then the last question for me is that I noticed that AndroGel was removed from CVS’s formulary but then put on the preferred lists for express or others were removed any thoughts on the interplay there for your generic AndroGel product?

Arthur Przybyl

No, because we are not, they’re not in control, that is not our generic AndroGel.

Unidentified Analyst

Okay. I misspoke I meant to have as the annual royalty.

Arthur Przybyl

It belongs to Teva, we receive a royalty of 5% of their net sales on the product. And so, I typically do not comment on their strategies to launch their product because we’re not in control of that situation. We are literally just cash and the royalty check. So, for me it’s a wait and see when they launch and we’ll be able to comment on perhaps what our royalty check is overtime. But we have not to do with the marketing strategies of that product.

Unidentified Analyst

Okay. Thanks for taking the questions. Good luck guys.

Arthur Przybyl

You’re welcome.

Operator

And there are currently no further phone questions at this time.

Arthur Przybyl

In that case I would like to thank everybody for joining our conference call today. We look forward to speaking to you again in three months. Thanks bye-bye.

Operator

Again thank you for your participation. This concludes today's call. You may now disconnect.

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