ANI Pharmaceuticals' (ANIP) CEO Arthur Przybyl on Q4 2015 Results - Earnings Call Transcript

| About: ANI Pharmaceuticals, (ANIP)

ANI Pharmaceuticals, Inc. (NASDAQ:ANIP)

Q4 2015 Results Earnings Conference Call

February 23, 2016, 10:30 AM ET

Executives

Arthur Przybyl - CEO

Charlotte Arnold - CFO

Analysts

Scott Henry - ROTH Capital

Louise Chen - Guggenheim

Rohit Vanjani - Oppenheimer

Operator

Welcome to the ANI Conference Call.

Arthur Przybyl

Good morning, everyone. And welcome to ANI's earnings conference call for the year end and fourth quarter 2015. My name is Art Przybyl, I am the CEO. And with me today is Charlotte Arnold, our Chief Financial Officer.

Before we begin, I want to refer everyone to the forward-looking statements language in this morning's 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 Principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today.

ANI continues to generate robust growth as evidenced by a year-over-year increases in revenues and EBITDA of 36% and 59% respectively. We have a solid foundation for future growth that includes 2015 revenues of 76.3 million, 2015 EBITDA of 43.5 million, several new product launches that are scheduled throughout 2016, a product pipeline that consist of 85 products. Cash on our balance sheet for additional transactions and our Corticotropin re-commercialization project.

In 2015, ANI continues to establish solid revenue and EBITDA growth from our two platform strategies, generic products and mature brands. Our generic product revenues grew 54% year-over-year, a direct result of increased EEMT sales and six new product launches that expanded our product line to 12 generic products.

These 12 products still have opportunities to additional growth. The potential for increase in EEMT market share, the recent addition of an exclusive raw material supply agreement for one of the products, and full year revenues for some products that were launched throughout the year.

Our four mature brand products Cortenema, Lithobid, Reglan and Vancocin did not generate year-over-year growth primarily due to the loss of over 1.5 million in Reglan sales with the government and typical declining prescriptions for our Lithobid and Vancocin brands, somewhat offset by annual price increases and full year revenues for both products.

However, branded products generated 2015 revenues of $11 million, better than 90% gross margins and significantly contributed to our cash flows.

Our guidance for 2016 includes a revenue range between $105 million to $112 million and an EBITDA range between $45 million to $53 million. Our existing 17 products, 13 generics, and 4 brands are expected to generate between $92 million and $98 million of the total revenue guidance for 2016.

This guidance includes the recent launch of an authorized generic [propafenone hydrochloride] [ph] and the expected upside from a recently signed exclusive raw material supply agreement. The guidance also assumes a stable market share of approximately 50% for EEMT.

Our new product introductions for 2016 are expected to generate between $13 million to $22 million. Included in this guidance is our second quarter launch of Hydrocortisone Rectal Cream 1% and 2.5%, which were recently acquired in our generic anti-cancer product.

The anti-cancer product launch was moved to the second quarter due to a delayed response to FDA discussion fees from our raw material supplier. Guidance also includes the launch of our partnered product with Dexcel, and I am pleased to report that the product received FDA approval yesterday.

Three products partnered with IDT and an important anti-infective product. It's important to point out that only one of these described product launches still requires a formal FDA ANDA approval, that being the anti-cancer drug.

The estimated effect of our new product launches on an annualized basis is revenues in the range of $52 million to $65 million and EBITDA in the range of $34 million to $40 million.

This assumes market conditions for these products remain as anticipated, but hopefully provide you with a snapshot for full year 2017 estimated revenue and EBITDA contributions from our 2016 product launches.

Not included in the guidance is a recently signed agreement as of yesterday, to market and authorize generic product that has an annual IMS market size of approximately $19.7 million, and which we expect to launch later this year.

We intend to continue to pursue transactions that we believe add value and growth to our existing generic and mature brand platforms. Last year we acquired 23 products and entered into an agreement to commercialize 18 more products.

Several of these products are already part of our 2016 guidance. To-date in 2016, we have acquired an additional six products, the Corticotropin products and the HC Rectal Cream and fenofibrate products.

We anticipate adding additional assets that are accretive to our revenue and EBITDA base, and when we do, we intend to update our 2016 guidance accordingly. Lastly, we intend to advance the recommercialization of Corticotropin on several fronts, including CMC work necessary to modernize the NVA to current standards, supply chain raw material advancements, and FDA Communications, all necessary efforts prior to any supplemental NDA filing.

As I mentioned, we have a solid EBITDA foundation in place and continue to pursue our near term goal of $100 million in annualized EBITDA.

I will now turn the conference call over to our CFO, Charlotte Arnold, who will provide you with more details on our financial results.

Charlotte Arnold

Thank you, Art, and good morning everyone, and thank you for joining our conference call to discuss ANI’s fourth quarter and year-end financial results for 2015. We are pleased to report that our financial performance during the fourth quarter and full year for 2015, was within the range of our guidance, capping an outstanding year of growth for ANI.

We generated record net revenues and record adjusted non-GAAP EBITDA while launching six new products, acquiring 23 others, and entering into a partnership to commercialize 18 more. These activities position ANI for significant growth in 2016 as we realize a full year of sales from our 2015 launches and expand our marketed portfolio with additional products.

In our press release today, we provided financial guidance for 2016, which reflects our expectations for continued growth, and we will update this guidance on a quarterly basis.

Turning now to some highlights of our financial performance for the fourth quarter of 2015, we generated net revenues of $18 million and adjusted non-GAAP EBITDA of $9.5 million, within the range of the guidance we provided during our third quarter earnings conference call.

All of our generic products met or exceeded our revenue expectations for the quarter, while our branded product revenue was slightly below our forecast due to a $246,000 shell stock adjustment we recorded in the fourth quarter for price increases for our Lithobid and Vancocin products.

Our adjusted non-GAAP diluted earnings per share of $0.52 was below guidance due to a higher current tax provision than we had forecast. This higher current tax provision was due primarily to temporary differences between our GAAP pre-tax income and our estimated taxable income for 2015.

For calendar 2015, we generated record net revenues of $76.3 million and record adjusted non-GAAP EBITDA of $43.5 million, again within the range of the guidance we provided during our third quarter earnings conference call.

Our adjusted non-GAAP diluted earnings per share of $2.72, was below guidance due to the impact of the higher current tax provision I mentioned earlier. For further information regarding our fourth quarter and full year results, I invite you to review the detailed comparisons we've provided in this morning's press release.

We are also pleased to provide the following financial guidance for 2016, based on our current estimates of market shares and pricing for each of our products, our cost of sales, our operating cost, and the anticipated timing of future product launches.

Net revenues for 2016, to be between $105 million and $120 million, adjusted non-GAAP EBITDA to be between $45 million and $53 million, adjusted non-GAAP net income per diluted share to be between $2.94 and $3.31, assuming 11,552,000 weighted average shares outstanding. And U.S. GAAP diluted EPS to be between $0.30 per share and $0.65 per share.

Our 2016 guidance assumed a stable market share for EEMT and between $13 million and $22 million of revenue from new product launches. Given the timing of many of these launches, our expectations for 2016 are that our financial performance will build throughout the year, with the first quarter of 2016 showing moderate growth over the fourth quarter of 2015.

For the full year, we are estimating revenue growth between $29 million and $44 million and EBITDA growth between $1.5 million and $9.5 million. Our 2016 guidance includes the impact of an approximately $4 million reduction in EBITDA due to the loss in 2015 of a key customer for our Reglan product, and the transition of the authorized generic for Vancocin into our own label.

We are currently building our market share for the authorized generic for Vancocin. However, we do not expect in 2016 to be able to fully offset a loss of the authorized generic royalties we received from our previous marketing partner during 2015.

In addition, we are forecasting increased product development and other expenses in 2016 as we continue to invest in our pipeline and the personnel required to support our future product launches.

In conclusion, we are very pleased with our financial performance for the fourth quarter and for all of 2015, and look forward to continuing to execute on our business strategies in 2016.

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

Arthur Przybyl

Thank you, Charlotte. And moderator, we will now open the conference call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Scott Henry from ROTH Capital. Your line is open.

Scott Henry

Thank you and good morning. Congratulations, it seems like business is pretty strong right now. I guess, Art, if I could just start on the EEMT front, could you tell me what - you have mentioned you think you are going to have the half the market. What size do you currently assess the market at?

Arthur Przybyl

Well, the market size there is by the market participant. So our 50% market share relates to approximately $40 million in revenues. But it's important to understand that the other two competitors who sell their product, their EEMT version at a lower price certainly have a lower revenue base than we do.

Scott Henry

Okay. That's helpful. And there was a thought that Seton at some point would run out of supply? Do you still expect that to happen in - it sounds like that's not factored into your assumptions for your revenue outlook?

Arthur Przybyl

We did not factor that in. We believe that their market share was - relates to one customer is somewhere between approximately 10% to 12% and that that will be stable throughout the course of this year.

Scott Henry

Okay. So you expected to stay this year and then should wind out, I will guess, in 2017?

Arthur Przybyl

That's correct, but we are not going to make any forecast. We are going to stick to our 50% market share forecast and as that changes and we essentially either win or lose hopefully, not any contracts, we will update our guidance and market share forecast accordingly.

Scott Henry

Okay. I don't know if you have updated us on this. But whatever happened with Bio-T-Gel, the testosterone gel. Should we get any contribution in 2016 from that?

Arthur Przybyl

We are not forecasting contributions from it. We do have a CMO partner for the product. So it is possible that the product could still be launched in 2016 late, but we - because of the de minimis nature of the revenue in EBITDA contribution from the product with such a late launch in '16, we did not uploaded into our guidance in any way share perform.

Scott Henry

Okay, great. And then as I look at the model and I try to piece together 2016, should we expect branded pharma as a whole to be relatively flat in '16 versus '15 with all the growth largely coming from the generic side?

Arthur Przybyl

The growth largely will come from the generic side and with the annualized loss of that Reglan agreement with the U.S. government, branded sales will probably be down versus the $11 million we did in 2015.

Scott Henry

Okay, great. I guess the final question. I don't know if you have any color on it. Anything new to report on Corticotropin or when should we expect material updates on the progress of that product?

Arthur Przybyl

I think you should expect some updates throughout the course of the year, but for now we stand pack on our comments regarding Corticotropin.

Scott Henry

Okay. Could you tell me what the next data point I should look for would be? Would you say when you start stability data or you may not want to give that much color?

Arthur Przybyl

I think the color we'll probably give is not necessarily any results of the meeting with FDA, but just the fact that we have met with the agency, the fact that we have partnered for the raw material supply of our product. I think those are important macro data points.

Scott Henry

Okay, great. Thank you for taking the questions, Art.

Arthur Przybyl

You're welcome Scott.

Operator

Your next question comes from line of Louise Chen from Guggenheim. Your line is open.

Louise Chen

Hi. Thanks for taking my questions, I had a few here. So first question I had for you was on EEMT. There has been a lot of focus on it but you do have 85 products under development so curious if you could help us think more longer term and when you might diversify sales away from this product and how should we think about it as part of your portfolio for the next few years.

And then the second -

Arthur Przybyl

So let me answer that first Louise because you usually have a three or four part question and so I’m going to interrupt you and take one part at a time, because that’s a very good question. So our perspective on EEMT is that we have a solid stable franchise associated with the product in terms of revenues and EBITDA at the market share that we are forecasting. But to be clear we continue to - from my perspective de-concentrate our revenue base away from that product with the launch of additional new products and the fact that we also do transactions that sometimes are accretive from mature brands, even generics that also help to de-concentrate the overall revenue base away from EEMT and I think that's already begun.

That has actually begun from my perspective all the way back down to 2014 and we continue to take the overall revenue percentage of EEMP contributions down, while still growing the EEMT product revenues which grew certainly year-over-year from '14 to '15 and I think that’s important.

And so it’s one of the reasons why we guide our shareholders to our new product introductions for '16 and then what they will contribute potentially on an annualized basis in '17. And so that effort to, as you mentioned to de-concentrate our revenues away from EEMT is ongoing.

Now the one thing to point out with EEMT is the fact that we believe that we have a call option for upside associated with that product and I say that because, yes seeking as very limited ability to capture market share at this point in time.

Our other competitor Creekwood I think we made clear that this is from our perspective sub standard quality product that’s in the marketplace today associated with a manufacture of that product who's under a current consent decree. And so although with some customers sometimes price resonates over quality. In the end I believe quality wins out and that’s important for the healthcare consumer and any patients of the product.

And so my perspective is that you know there is still an opportunity for us to increase share, we’re just not guiding to it and we feel very comfortable and confident in the market share and the guidance that we have given for EEMT at the 50% rate going forward.

Louise Chen

Okay, thanks. And then, on the anti cancer product I didn’t catch all of your comments earlier but did you say that there was maybe some timing delay to the target action date on -

Arthur Przybyl

Yes, we do not expect approval on target action date. We expect approval to occur hopefully within a relatively close time frame from that date that allows us to launch the product in the second quarter which is what we are forecasting too.

We have responded to all of the FDA deficiencies with the exception of the last responses from our raw material supplier, the analytics associated with that response have unfortunately taken longer than we would have liked to it seems, nevertheless by the end of this month which is by Monday all of those responses will be in-house and you know we will hopefully see and expedite FDA approval for the drug shortly thereafter.

So it was prudent of us to move our launch date from the first quarter to the second quarter of this year because of the late response to raw material deficiencies received by our API supplier.

Louise Chen

Okay. And then I had a question on generic drug pricing, a lot of your competitors have talked about increasing pricing pressure, and curious if you’ve seen that and even if you have what you think might be causing that in the market?

Arthur Przybyl

Well I think to begin with on a macro level, generic pricing is always under pressure, I think you always have constant request for proposals, you have people receiving in between big years sometimes and approvals for products and then of course enter the marketplace with that product at a lower price that exists in the market.

So I don't think from my perspective over 30 years in this business that the pricing pressure is any different than it has been over that period of time, frankly. And as you know I think there has been more of movement towards rational pricing, as well as obviously some perhaps exorbitant price increases associated with drug shortages, and some of the Indian regulatory situation that have occurred associated with warning letters you know on the subcontinent.

But my perspective is that, it's a rational approach to pricing that certainly if the FDA works out of their backlog associated with and/or approval established before the PDUFA came into existence. You might see some additional pricing pressure because you are sort of letting the air out of the bubble, but at the same time I think that's actually good.

I think everybody in the industry is more of the mindset that approvals to a timeline versus the monies that we are paying into PDUFA makes sense to the industry. And so I support whatever Janet Woodcock is saying associated with the potential for shorter timelines to approval for generic drugs in the future.

Louise Chen

Okay. And then I just have one last question for Charlotte and Charlotte if it's too complicated we can take it offline. But I was just curious on your guidance to 2016, I was having hard time getting to the EPS number and was thinking maybe I need better understanding of the cost to sales and the taxes and curious if there is anything else maybe the nuance in the guidance, you can walk us through, thanks.

Charlotte Arnold

Yes, so one of the things probably makes sense to point out is the cost of sales guidance that we provided does reflect an increasing percentage of our revenues that are subject to partner share arrangements and that basically is the public products. So that as we've said over the last several years, that we don't expect our margins to remain at that 80 plus percent level.

As we work through our pipeline, we’re starting to see the results of that. In aggregation the tax guidance that we provided is what we expect to pay – that's our current tax provision for 2016, what we actually expect to pay in cash taxes and that is based on our U.S. taxable income not our GAAP pre-tax income. And so we forecasted our differences between those two amounts and I can walk you through that in more detail later if you like.

Louise Chen

Okay. Thank you.

Arthur Przybyl

And Louise, I would also like to point out that you know part of the disparity between our revenues and the percentage that we drop to EBITDA why that has changed is because we are now marketing an authorized generic for fenofibrate and so that product which you know potentially can drive $20 million in revenues for a $1.5 million in EBITDA is one of the reasons why you begin to see a lessening of the percentage of revenues drop to the EBITDA line.

Louise Chen

Okay. Thank you.

Operator

[Operator Instructions] The next question comes from the line of Rohit Vanjani from Oppenheimer. Your line is open.

Rohit Vanjani

Hi, Charlotte and Art, thanks for taking the question, congrats on guiding the quarter. For 2016 I know that you said that EEMT was 50% share but are you anticipating a decline in those revenues because of the overall market or are you anticipating kind of flattish revenue the 40 million that you talked about.

Arthur Przybyl

I think its flat to down a little bit because certainly we do have decline in prescriptions in that market, but we can go look at our last three quarter unit sales versus where we are at right now, we think it’s very close to what we did in 2015.

Rohit Vanjani

Okay. And I missed in your prepared comments you said that the Dexcel product was approved yesterday?

Arthur Przybyl

That's correct, it was, yes. That leaves us with our products for this year that have a meaningful material effect to our guidance and our business down to one that really requires a formal FDA approval and that’s for the generic anti cancer product.

Rohit Vanjani

Right, but the Dexcel product launch was moved from 2Q to 3Q, what was the reason for the switch there. Did that Dexcel product approval come later?

Arthur Przybyl

We actually thought Rohit that the Dexcel product was, you know the target action date on the Dexcel product was the beginning part of April. And so based on the fact that Dexcel will have to manufacture product force and then ship it over to us, we thought it was prudent to move it to third quarter.

Whether we launch in the second quarter now is a debate we have to see what the timeline is to get product over here, so it could happen you know late in the second quarter as compared to maybe third quarter launch, we will see.

Rohit Vanjani

So there is some conservatism there that you wanted to make sure you had.

Arthur Przybyl

Well, we did not know when we were publishing this press release, we did not - as of yesterday, until yesterday morning, we didn’t know that the product obviously was approved, so that’s a pleasant surprise to us obviously.

Rohit Vanjani

And then remind us again of that market there it’s going one brand in that market, are there one brand and one generic?

Arthur Przybyl

No, there are several generic players in that market.

Rohit Vanjani

Okay. And then in the product pipeline, the schedule two products are those are all part of our second type of basket so in the end -

Arthur Przybyl

No Rohit, none of the scheduled two products are part of any products that we bought from [seller] [ph], they are all part of earlier on internal ANDA product development that occurred even before we acquired the first tub of basket and so they are all essentially on a run rate now to come to market essentially or to be approved of in the fourth quarter.

Rohit Vanjani

Okay. I think in the last quarter you had talked about when you had the same product pipeline you had talked about five products from that second tub of basket being approved and launched in 2016 and now I think you’ve limited it one, the anti infective. So what are you expecting with those four other tub of products?

Arthur Przybyl

We probably moved them into, we did - we moved them into the first quarter of 2017.

Rohit Vanjani

Okay. And then for Flecainide, can you remind us how many competitors are in that market?

Arthur Przybyl

I cannot, I believe there are three competitors in that marketplace today but I'd have to look that up again.

Rohit Vanjani

Okay. And then on the R&D spend I know you don't want to talk too much about the quarter conservatism, but can you at least say where you expect the bulk of that spending to occur kind of how we should rate that, is it mostly second half?

Arthur Przybyl

The bulk of that spending will be personnel, and as well as a CMC work that we are doing with various contract laboratories.

Rohit Vanjani

But it will be mostly in the second half of the year or even the fourth quarter of the year?

Arthur Przybyl

I think it will be fairly spread out from the second, third and fourth quarter.

Rohit Vanjani

And then the last one from me, I think on the press release you say that you entered into two additional acquisitions for six products in 2016, two are the Corticotropin, I think three are from each two pharma and the last one was that one that you hadn’t announced that wasn’t in guidance in $19.7 million market?

Arthur Przybyl

No, that was not an acquisition. There was a generic injectable product as part of the H2 acquisition. So you had the two hydrocortisone rectal creams, one 2.5% and those are two products where fenofibrate is the third and the fourth one was a development project for a generic injectable product that came along with those other three.

Rohit Vanjani

So there are four total products from H2 and then two from Merck?

Arthur Przybyl

That is correct.

Rohit Vanjani

Okay. And then can you give any details on the part that you said that, I missed a little bit in the prepared comments, the 19.7 million total market that's not in guidance, what was that product or any details that you can give on that?

Arthur Przybyl

It’s still undisclosed, we just signed the agreements with the company yesterday and we do not have their permission to disclose that product at this particular point in time.

Rohit Vanjani

Great. Thanks again and congrats again.

Operator

There are no further questions at this time.

Arthur Przybyl

Well, then I’d like to thank everybody for joining our conference call. And we look forward to updating you accordingly throughout the year as we continue to pursue growth and value for our investors. Thank you very much. Bye, bye.

Operator

This concludes today's conference. You may now disconnect.

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