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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark one) | |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (IRS Employer |
(Address of principal executive offices)
(
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol(s) |
| Name of each exchange on which registered: |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | |
|
|
Non-accelerated filer ☐ | Smaller reporting company |
|
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 1, 2022 there were
ANI PHARMACEUTICALS, INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended June 30, 2022
TABLE OF CONTENTS
2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, but are not limited to, statements about future operations, strategies and growth potential, the revenue potential (licensing, royalty and sales) of products we sell, development timelines, expected timeframe for submission of new drug applications or supplemental new drug applications to the U.S. Food and Drug Administration (the “FDA”), pipeline or potential markets for our products, selling and marketing strategies and associated costs to support the sales of Purified Cortrophin® Gel (Repository Corticotropin Injection USP) (“Cortrophin Gel”), impact of accounting principles, litigation expenses, liquidity and capital resources, the impact of the novel coronavirus (“COVID-19”) global pandemic on our business, and other statements that are not historical in nature, particularly those that utilize terminology such as “anticipates,” “will,” “expects,” “plans,” “potential,” “future,” “believes,” “intends,” “continue,” other words of similar meaning, derivations of such words, and the use of future dates. Such forward-looking statements are based on the reasonable beliefs of our management as well as assumptions made by and information currently available to our management. Readers should not put undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified; therefore, our actual results may differ materially from those described in any forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our periodic reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including those discussed in the “Risk Factors” section in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the following factors:
| • | risks that we may face with respect to importing raw materials; |
| • | delays or failure in obtaining and maintaining approvals by the FDA of the products we sell; |
| • | changes in policy or actions that may be taken by the FDA and other regulatory agencies, including drug recalls; |
| • | the ability of our manufacturing partners to meet our product demands and timelines; |
| • | our dependence on single source suppliers of ingredients due to the time and cost to validate a second source of supply; |
| • | acceptance of our products at levels that will allow us to achieve profitability; |
| • | our ability to develop, license or acquire, and commercialize new products; |
| • | the level of competition we face and the legal, regulatory and/or legislative strategies employed by our competitors to prevent or delay competition from generic alternatives to branded products; |
| • | our ability to protect our intellectual property rights; |
| • | the impact of legislative or regulatory reform on the pricing for pharmaceutical products; |
| • | the impact of any litigation to which we are, or may become, a party; |
| • | our ability, and that of our suppliers, development partners, and manufacturing partners, to comply with laws, regulations and standards that govern or affect the pharmaceutical and biotechnology industries; |
| • | our ability to maintain the services of our key executives and other personnel; |
| • | whether we experience disruptions to our operations resulting from the anticipated closure of our Oakville, Ontario manufacturing plant; and |
| • | general business and economic conditions, such as inflationary pressures, and the effects and duration of outbreaks of public health emergencies, such as COVID-19. |
These factors should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2021, including the factors described in “Item 1A. Risk Factors.” Other risks may be described from time to time in our filings made under
3
the securities laws, including our quarterly reports on Form 10-Q and our current reports on Form 8-K. New risks emerge from time to time. It is not possible for our management to predict all risks. The forward-looking statements contained in this document are made only as of the date of this document. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
The Company may use its investor relations website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s investor relations website. We encourage investors and others interested in our Company to review the information we post on our investor relations website in addition to filings with the SEC, press releases, public conference calls and webcasts. Information contained on the Company’s website is not included as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
NOTE REGARDING TRADEMARKS
Apexicon®, Cortenema®, Purified Cortrophin® Gel, Cortrophin-Zinc®, Inderal® LA, Inderal® XL, InnoPran XL®, Lithobid®, Reglan®, Vancocin®, and Veregen® are registered trademarks subject to trademark protection and are owned by ANI Pharmaceuticals, Inc. and its consolidated subsidiaries. Atacand® and Atacand HCT® are the property of AstraZeneca AB and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Arimidex® and Casodex® are the property of AstraZeneca UK Limited and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Oxistat® is the property of Fougera Pharmaceuticals Inc. and licensed to ANI Pharmaceuticals, Inc. for U.S. sales of Oxistat® Lotion. Pandel® is property of Taisho Pharmaceutical Co, Ltd. and licensed to ANI Pharmaceuticals for U.S. sales of Pandel® creme.
4
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
Assets | ||||||
Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of $ |
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Inventories, net |
| |
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Prepaid income taxes |
| |
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Assets held for sale | | — | ||||
Prepaid expenses and other current assets |
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Total Current Assets |
| |
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Non-current Assets | ||||||
Property and equipment |
| |
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Accumulated depreciation | ( | ( | ||||
Property and equipment, net | | | ||||
Restricted cash |
| |
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Deferred tax assets, net of deferred tax liabilities and valuation allowance |
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Intangible assets, net |
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Goodwill |
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Derivatives and other non-current assets |
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Total Assets | $ | | $ | | ||
Liabilities, Mezzanine Equity, and Stockholders’ Equity |
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Current Liabilities |
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Current debt, net of deferred financing costs | $ | | $ | | ||
Accounts payable |
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Accrued royalties |
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Accrued compensation and related expenses |
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Accrued government rebates |
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Returned goods reserve |
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Accrued expenses and other |
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Total Current Liabilities |
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Non-current Liabilities |
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Non-current debt, net of deferred financing costs and current component |
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Non-current contingent consideration |
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Derivatives and other non-current liabilities |
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Total Liabilities | $ | | $ | | ||
Commitments and Contingencies (Note 13) |
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Mezzanine Equity |
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Convertible Preferred Stock, Series A, $ |
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Stockholders’ Equity |
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Common Stock, $ |
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Class C Special Stock, $ |
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Preferred Stock, $ |
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Treasury stock, |
| ( |
| ( | ||
Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive income/(loss), net of tax |
| |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Net Revenues | $ | | $ | | $ | | $ | | |||||
Operating Expenses |
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Cost of sales (excluding depreciation and amortization) |
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Research and development |
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Selling, general, and administrative |
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Depreciation and amortization |
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Contingent consideration fair value adjustment | ( | — | ( | | |||||||||
Legal settlement expense | — | | | | |||||||||
Purified Cortrophin Gel pre-launch charges | — | | | | |||||||||
Restructuring activities | | — | | | |||||||||
Intangible asset impairment charge |
| |
| — |
| |
| | |||||
Total Operating Expenses |
| |
| |
| |
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Operating Loss |
| ( |
| ( |
| ( |
| ( | |||||
Other Expense, net |
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Interest expense, net |
| ( |
| ( |
| ( |
| ( | |||||
Other income/(expense), net |
| |
| ( |
| |
| ( | |||||
Loss Before Benefit for Income Taxes |
| ( |
| ( |
| ( |
| ( | |||||
Benefit for income taxes |
| |
| |
| |
| | |||||
Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Dividends on Series A Convertible Preferred Stock | ( | — | ( | | |||||||||
Net Loss Available to Common Shareholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Basic and Diluted Loss Per Share: |
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Basic Loss Per Share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Diluted Loss Per Share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Basic Weighted-Average Shares Outstanding |
| |
| |
| |
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Diluted Weighted-Average Shares Outstanding |
| |
| |
| |
| | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income/(Loss)
(in thousands)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Other comprehensive income/(loss), net of tax: |
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Gains/(losses) on interest rate swap, net of tax |
| |
| ( |
| |
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Total other comprehensive income/(loss), net of tax |
| |
| ( |
| |
| | |||||
Total comprehensive loss, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity
For the Three Months Ended June 30, 2022 and 2021
(in thousands)
(unaudited)
Mezzanine Equity |
| Mezzanine Equity | Total Mezzanine | |||||||||||||||||||||||||||
Series A Convertible | Series A Convertible |
| Common |
| Common | Class C |
| Additional |
| Treasury |
|
| Accumulated |
|
| Equity and | ||||||||||||||
Preferred | Preferred Stock | Stock | Stock | Special | Paid-in | Stock | Treasury | Other Comprehensive | Stockholders' | |||||||||||||||||||||
Stock | Shares | Par Value | Shares | Stock | Capital | Shares | Stock | Gain/(Loss), Net of Tax | Accumulated Deficit | Equity | ||||||||||||||||||||
Balance, March 31, 2021 | $ | — | — | $ | |
| | $ | — | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | |||||||||
Stock-based Compensation Expense | — | — |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||||
Treasury Stock Purchases for Restricted Stock Vests | — | — |
| — |
| — |
| — |
| — |
| |
| ( |
| — |
| — |
| ( | ||||||||||
Issuance of Common Shares upon Stock Option and ESPP Exercise | — | — |
| — |
| |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||||
Issuance of Restricted Stock Awards | — | — |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||||
Restricted Stock Awards Forfeitures | — | — | — | ( | — | ( | ( | — | — | — | ( | |||||||||||||||||||
Other Comprehensive Income | — | — |
| — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||
Net Loss | — | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||||||
Balance, June 30, 2021 | $ | — | — | $ | |
| | $ | — | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | |||||||||
Balance, March 31, 2022 | $ | | $ | |
| | $ | — | $ | |
| | $ | ( | $ | | $ | ( | $ | | ||||||||||
Stock-based Compensation Expense | — | — |
| — | — | — | |
| — | — | — | — | | |||||||||||||||||
Treasury Stock Purchases for Restricted Stock Vests | — | — |
| — | — | — | — | | ( | — | — | ( | ||||||||||||||||||
Issuance of Common Shares upon Stock Option and ESPP Exercise | — | — |
| — | | — | | — | — | — | — | | ||||||||||||||||||
Issuance of Restricted Stock Awards | | |
| | | | | | | | | | ||||||||||||||||||
Dividends on Series A Convertible Preferred Stock | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||
Restricted Stock Awards Forfeitures | — | — | — | ( | — | — | — | — | — | — | — | |||||||||||||||||||
Other Comprehensive Income | — | — |
| — | — | — | — | — | — | | — | | ||||||||||||||||||
Net Loss | — | — |
| — | — |
| — |
| — | — |
| — |
| — |
| ( |
| ( | ||||||||||||
Balance, June 30, 2022 | $ | | $ | | | $ | — | $ | | | $ | ( | $ | | $ | ( | $ | | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity
For the Six Months Ended June 30, 2022 and 2021
(in thousands)
(unaudited)
Mezzanine Equity |
| Mezzanine Equity |
|
| Total | |||||||||||||||||||||||||
Series A Convertible | Series A Convertible | Common |
| Common | Class C |
| Additional |
| Treasury |
|
| Accumulated | Mezzanine Equity | |||||||||||||||||
Preferred | Preferred Stock | Stock | Stock | Special | Paid-in | Stock | Treasury | Other Comprehensive | and Stockholders' | |||||||||||||||||||||
Stock | Shares | Par Value | Shares | Stock | Capital | Shares | Stock | (Loss)/Gain, Net of Tax | Accumulated Deficit | Equity | ||||||||||||||||||||
Balance, December 31, 2020 | $ | — |
| — | $ | |
| | $ | — | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Stock-based Compensation Expense |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||
Treasury Stock Purchases for Restricted Stock Vests |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| ( |
| — |
| — |
| ( | ||||||||
Issuance of Common Shares upon Stock Option and ESPP Exercise |
| — |
| — |
| — |
| |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||
Issuance of Restricted Stock Awards |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||
Restricted Stock Awards Forfeitures | — | — | — | ( | — | ( | ( | — | — | — | ( | |||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | | — | | |||||||||||||||||||
Net Loss | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||
Balance, June 30, 2021 | $ | — |
| — | $ | |
| | $ | — | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Balance, December 31, 2021 | $ | |
| | $ | |
| | $ | — | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Stock-based Compensation Expense |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||
Treasury Stock Purchases for Restricted Stock Vests |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| ( |
| — |
| — |
| ( | ||||||||
Issuance of Common Shares upon Stock Option and ESPP Exercise |
| — |
| — |
| — |
| |
| — |
| |
| — |
| — |
| — |
| — |
| | ||||||||
Issuance of Restricted Stock Awards | — |
| — | — |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||||
Restricted Stock Awards Forfeitures | — | — | — | ( | — | — | — | — | — | — | — | |||||||||||||||||||
Dividends on Convertible Preferred Stock | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||
Other comprehensive income |
| — | — |
| — | — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||||
Net Loss | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||
Balance, June 30, 2022 | $ | | | $ | | | $ | — | $ | | | $ | ( | $ | | $ | ( | $ | | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30, | |||||||
2022 | 2021 | ||||||
Cash Flows From Operating Activities |
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Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash and cash equivalents (used in)/provided by operating activities: |
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Stock-based compensation |
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Deferred taxes |
| ( |
| ( | |||
Depreciation and amortization |
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Non-cash interest |
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Contingent consideration fair value adjustment |
| ( |
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Asset impairment charges |
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Gain on sale of ANDAs |
| ( |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
| ( |
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Inventories, net |
| ( |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued royalties |
| |
| ( | |||
Current income taxes payable, net |
| |
| ( | |||
Accrued government rebates |
| |
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Returned goods reserve |
| ( |
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Accrued expenses, accrued compensation, and other |
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Net Cash and Cash Equivalents (Used in)/Provided by Operating Activities |
| ( |
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Cash Flows From Investing Activities |
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Acquisition of Novitium Pharma LLC, net of cash acquired |
| ( |
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Acquisition of product rights, IPRD, and other related assets |
| ( |
| ( | |||
Acquisition of property and equipment, net |
| ( |
| ( | |||
Proceeds from the sale of long-lived assets |
| |
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Net Cash and Cash Equivalents Used in Investing Activities |
| ( |
| ( | |||
Cash Flows From Financing Activities |
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Payments on borrowings under credit agreements |
| ( |
| ( | |||
Borrowings under Prior Revolver agreement | | | |||||
Series A convertible preferred stock dividends paid |
| ( |
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Proceeds from stock option exercises and ESPP purchases |
| |
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Payments of debt issuance costs |
| |
| ( | |||
Treasury stock purchases for restricted stock vests |
| ( |
| ( | |||
Net Cash and Cash Equivalents (Used in)/Provided by Financing Activities |
| ( |
| | |||
Net Change in Cash and Cash Equivalents |
| ( |
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Cash and cash equivalents, beginning of period |
| |
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Cash and cash equivalents, end of period | $ | | $ | | |||
Reconciliation of cash, cash equivalents, and restricted cash, beginning of period |
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Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
| |
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Cash, cash equivalents, and restricted cash, beginning of period | $ | | $ | | |||
Reconciliation of cash, cash equivalents, and restricted cash, end of period |
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Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
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Cash, cash equivalents, and restricted cash, end of period | $ | | $ | | |||
Supplemental disclosure for cash flow information: |
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Cash paid for interest, net of amounts capitalized | $ | | $ | | |||
Cash paid for income taxes | $ | | $ | | |||
Supplemental non-cash investing and financing activities: |
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Debt issuance costs in accrued expenses | $ | | $ | | |||
Property and equipment purchased and included in accounts payable | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
1. | BUSINESS, PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS |
Overview
ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building a successful Purified Cortrophin Gel franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our manufacturing capabilities. Our four pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by first quarter 2023. This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021. We will transition the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites, and we are seeking to find potential buyers for the Oakville site.
Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, and possible fluctuations in financial results. The accompanying unaudited interim condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due. We believe the going-concern basis is appropriate for the accompanying unaudited interim condensed consolidated financial statements based on our current operating plan and business strategy for the 12 months following the issuance of this report.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior period information has been reclassified to conform to the current period presentation. In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, comprehensive income, and cash flows. The consolidated balance sheet at December 31, 2021 has been derived from audited financial statements as of that date. The unaudited interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (the “SEC”). We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of ANI Pharmaceuticals, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
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Foreign Currency
We have subsidiaries located in Canada and India. The Canada-based subsidiary conducts its transactions in U.S. dollars and Canadian dollars, but its functional currency is the U.S. dollar. The Indian-based subsidiary generally conducts its transactions in Indian rupees, which is also its functional currency. The results of any non-U.S. dollar transactions and balances are remeasured in U.S. dollars at the applicable exchange rates during the period and resulting foreign currency transaction gains and losses are included in the determination of net income. Our gain or loss on transactions denominated in foreign currencies and the translation impact of local currencies to U.S. dollars was immaterial for the three and six months ended June 30, 2022 and 2021. Unless otherwise noted, all references to “$” or “dollar” refer to the U.S. dollar.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the condensed consolidated financial statements, estimates are used for, but not limited to, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, income tax provision or benefit, deferred taxes and valuation allowance, stock-based compensation, revenue recognition, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, determination of right-of-use assets and lease liabilities, allowance for credit losses purchase price allocations, and the depreciable lives of long-lived assets. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates estimates used in the preparation of the financial statements for reasonableness.
Restructuring Activities
We define restructuring activities to include costs directly associated with exit or disposal activities. Such costs include cash employee contractual severance and other termination benefits, one-time employee termination severance and benefits, contract termination charges, impairment and acceleration of depreciation associated with long-lived assets, and other exit or disposal costs. In general, we record involuntary employee- related exit and disposal costs when there is a substantive plan for employee severance and related payments are probable and estimable. For one-time termination benefits, including those with a service requirement, expense is recorded when the employees are entitled to receive such benefits and the amount can be reasonably estimated. Expense related to one-time termination benefits with a service requirement is recorded over time, as the service is completed. Contract termination fees and penalties, and other exit and disposal costs are generally recorded as incurred. Restructuring activities are recognized as an operating expense in our statement of operations.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
We have evaluated all issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our condensed consolidated statements of operations, comprehensive income, balance sheets, or cash flows.
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2. | REVENUE RECOGNITION AND RELATED ALLOWANCES |
Revenue Recognition
We recognize revenue using the following steps:
| ● | Identification of the contract, or contracts, with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price, including the identification and estimation of variable consideration; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when we satisfy a performance obligation. |
We derive our revenues primarily from sales of generic and branded pharmaceutical products. Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. We estimate variable consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.
All revenue recognized in the accompanying unaudited interim condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue:
Three Months Ended | Six Months Ended | ||||||||||||
Products and Services | June 30, | June 30, | June 30, | June 30, | |||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Sales of generic pharmaceutical products | $ | | $ | | $ | | $ | | |||||
Sales of established brand pharmaceutical products |
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| |
| |
| | |||||
Sales of rare disease pharmaceutical products | | — | | — | |||||||||
Sales of contract manufactured products |
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| |
| | |||||
Royalties from licensing agreements |
| |
| — |
| |
| | |||||
Product development services |
| |
| |
| |
| | |||||
Other |
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| |
| |
| | |||||
Total net revenues | $ | | $ | | $ | | $ | | |||||
Three Months Ended | Six Months Ended | ||||||||||||
Timing of Revenue Recognition | June 30, | June 30, | June 30, | June 30, | |||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Performance obligations transferred at a point in time | $ | | $ | | $ | | $ | | |||||
Performance obligations transferred over time |
| |
| |
| |
| | |||||
Total | $ | | $ | | $ | | $ | | |||||
In the three and six months ended June 30, 2022 and 2021, we did not incur, and therefore did not defer, any material incremental costs to obtain or fulfill contracts. We recognized a decrease of $
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the Kite license agreement pursuant to the Tripartite Agreement as described herein in Royalties from Licensing Agreements. We provide technical transfer services to customers, for which services are transferred over time. As of June 30, 2022 and December 31, 2021, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed. Our deferred revenue balance as of June 30, 2022, December 31, 2021, and December 31, 2020 was immaterial. For the three and six months ended June 30, 2022, we recognized $
Revenue from Sales of Generic and Branded Pharmaceutical Products
Product sales consists of sales of our generic and branded pharmaceutical products, including rare disease pharmaceutical products. Our sole performance obligation in our contracts is to provide pharmaceutical products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be satisfied when control of the product is transferred to the customer. Control is generally transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are generally sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment terms for these sales are generally less than 100 days.
Sales of our pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and cash discounts. Estimates for these elements of variable consideration require significant judgment.
The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the six months ended June 30, 2022 and 2021, respectively:
Accruals for Chargebacks, Returns, and Other Allowances | |||||||||||||||
Administrative | Prompt | ||||||||||||||
Government | Fees and Other | Payment | |||||||||||||
(in thousands) |
| Chargebacks |
| Rebates |
| Returns |
| Rebates |
| Discounts | |||||
Balance at December 31, 2020 (1) | $ | | $ | | $ | | $ | | $ | | |||||
Accruals/Adjustments |
| |
| |
| |
| |
| | |||||
Credits Taken Against Reserve |
| ( | ( |
| ( |
| ( |
| ( | ||||||
Balance at June 30, 2021 (1) | $ | | $ | | $ | | $ | | $ | | |||||
Balance at December 31, 2021 (1) | $ | | $ | | $ | | $ | | $ | | |||||
Accruals/Adjustments |
| |
| |
| |
| |
| | |||||
Credits Taken Against Reserve |
| ( | ( |
| ( |
| ( |
| ( | ||||||
Balance at June 30, 2022 (1) | $ | | $ | | $ | | $ | | $ | | |||||
| (1) | Chargebacks are included as an offset to accounts receivable in the unaudited interim condensed consolidated balance sheets. Administrative Fees and Other Rebates and Prompt Payment Discounts are included as an offset to accounts receivable or as accrued expenses and other in the unaudited interim condensed consolidated balance sheets. Returns are included in returned goods reserve in the unaudited interim condensed consolidated balance sheets. Government Rebates are included in accrued government rebates in the unaudited interim condensed consolidated balance sheets. |
Contract Manufacturing Product Sales Revenue
Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of a third party. Our performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold at pre-determined
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standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our contract manufactured pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally fewer than two months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products.
As of June 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $
Royalties from Licensing Agreements
From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above. From time to time, we enter into supply and distribution agreements with contract manufacturing customers, under which we license to the contract manufacturing customer the right to sell our products, and we are entitled to a royalty on sales made by the contract manufacturing customer under these arrangements. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the contract manufacturing customers.
Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr. Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we were entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc. (“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement. Under such license agreement, Kite licensed from Dr. Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®. Under the Tripartite Agreement, portions of these payments were to be distributed to The Regents and to us.
Historically, we recorded royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties. Generally, cash was received directly from Cabaret once a year. The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, ANI and Cabaret. In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed. In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement. As a result, we recognized $
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Product Development Services Revenue
We provide product development services to customers, which are performed over time. These are services primarily performed at our facilities in East Windsor, New Jersey and Oakville, Ontario. As we intend to cease operations at the Oakville, Ontario facility by the first quarter of 2023, we expect to transition the product development services at the facility to one of our three U.S.-based manufacturing sites.
The duration of these development projects can be up to three years. Deposits received from these customers are recorded as deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our performance obligations are satisfied. We recognize revenue on a percentage of completion basis, which results in contract assets on our balance sheet. As of June 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open product development services contracts was $
Credit Concentration
Our customers are primarily wholesale distributors, chain drug stores, group purchasing organizations, and pharmaceutical companies.
During the three and six months ended June 30, 2022 and 2021 we had three customers that accounted for 10% or more of net revenues. As of June 30, 2022, accounts receivable from these customers totaled
The three customers represent the total percentage of net revenues as follows:
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 |
| 2021 |
| 2022 |
|
| 2021 |
| |||
Customer 1 | | % | | % | | % | | % | ||||
Customer 2 | | % | | % | | % | | % | ||||
Customer 3 | | % | | % | | % | | % | ||||
3. | BUSINESS COMBINATION |
Summary
On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 8, 2021, for cash consideration,
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Purchase consideration consisted of the following:
| (in thousands) | ||
Cash consideration | $ | | |
Repayment of Novitium debts |
| | |
Fair value of restricted shares |
| | |
Fair value of contingent consideration |
| | |
Gross consideration | $ | | |
Cash acquired | | ||
Net consideration | $ | | |
The cash consideration was funded in part by borrowings under our new credit facility (Note 5) and through issuance of shares of Series A convertible preferred stock (Note 10). We acquired Novitium due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline via niche opportunities, to enhance our contract development and manufacturing organization (“CDMO”) business and U.S.-based manufacturing capacity, and to diversify our revenue base.
The preliminary allocation of the fair value of the Novitium acquisition, reflective of certain immaterial measurement period adjustments during the six months ended June 30, 2022, is shown in the table below. The allocation of the fair value will be finalized when all measurement period adjustments, if applicable, are complete.
| (in thousands) | ||
Total Purchase Consideration | $ | | |
Cash and cash equivalents |
| | |
Accounts receivable |
| | |
Inventories |
| | |
Prepaid expenses and other current assets |
| | |
Property and equipment |
| | |
Intangible assets | | ||
Goodwill |
| | |
Other non-current assets | | ||
Total assets acquired |
| | |
Accounts payable |
| | |
Accrued expense and other current liabilities | | ||
Accrued compensation and other related expenses | | ||
Accrued government rebates | | ||
Returned goods reserve | | ||
Other non-current liabilities | | ||
Total liabilities assumed |
| | |
Net assets acquired | $ | | |
The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $
Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill established as a result of the acquisition is tax deductible in the U.S.
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Novitium operations generated $
Restricted Shares
The Novitium acquisition consideration included
4. RESTRUCTURING
On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023. This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021. We will transition the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.
For the three and six months ended June 30, 2022, restructuring activities resulted in expenses of $
In conjunction with the planned exit of our Canadian facility, we have determined that the land and building at our Oakville, Ontario, Canada plant will be sold together over the transition period and meet the criteria to be classified as held for sale as of June 30, 2022. The land and building have a net carrying value of $
5. | INDEBTEDNESS |
Credit Facility
On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $
The Term Facility proceeds were used to finance the cash portion of the consideration under the Merger Agreement, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the merger. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.
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The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a)
We incurred $
In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders.
The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future domestic subsidiary guarantors’ assets. The Credit Facility is subject to customary financial and nonfinancial covenants.
The carrying value of the current and non-current components of the Term Facility as of June 30, 2022 and December 31, 2021 are:
Current | ||||||
June 30, | December 31, | |||||
(in thousands) |
| 2022 |
| 2021 | ||
Current borrowing on debt | $ | |
| $ | | |
Deferred financing costs |
| ( |
| ( | ||
Current debt, net of deferred financing costs | $ | | $ | | ||
Non-Current | ||||||
June 30, | December 31, | |||||
(in thousands) |
| 2022 |
| 2021 | ||
Non-current borrowing on debt | $ | | $ | | ||
Deferred financing costs |
| ( |
| ( | ||
Non-current debt, net of deferred financing costs and current component | $ | | $ | | ||
As of June 30, 2022, we had a $
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The contractual maturity of our Term Facility is as follows for the years ending December 31:
(in thousands) |
| Term Facility | ||
2022 | $ | | ||
2023 |
| | ||
2024 |
| | ||
2025 |
| | ||
2026 | | |||
2027 and thereafter | | |||
Total | $ | | ||
The following table sets forth the components of total interest expense related to the Term Facility during the three and six months ended June 30, 2022 and interest expense under the Prior Credit Agreement during the three and six months ended June 30, 2021, as recognized in the accompanying unaudited interim condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | June 30, | June 30, | ||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Contractual coupon | $ | | $ | | $ | | $ | | |||||
Amortization of finance fees |
| |
| |
| |
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Capitalized interest |
| ( |
| ( |
| ( |
| ( | |||||
$ | | $ | | $ | | $ | | ||||||
6. | DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY |
At times we use derivative financial instruments to hedge our exposure to interest rate risks. All derivative financial instruments are recognized as either assets or liabilities at fair value on the consolidated balance sheet and are classified as current or non-current based on the scheduled maturity of the instrument.
When we enter into a hedge arrangement and intend to apply hedge accounting, we formally document the hedge relationship and designate the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. When we determine that a derivative financial instrument qualifies as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive loss, net of tax in our consolidated balance sheets and will be reclassified to earnings when the hedged item affects earnings.
In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Agreement with Truist Bank, the interest rate swap with a notional value of $
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During the three and six months ended June 30, 2022, the change in fair value of the interest rate swaps was a gain of $
7. | EARNINGS (LOSS) PER SHARE |
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”), unvested restricted stock awards, and stock purchase warrants, using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share.
Our unvested restricted shares and Series A convertible preferred stock shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net loss) attributable to the unvested restricted shares and the common shares assumed converted from the preferred shares and excludes the impact of those shares from the denominator.
Earnings (loss) per share for the three and six months ended June 30, 2022 and 2021 are calculated for basic and diluted earnings (loss) per share as follows:
Basic | Diluted | Basic | Diluted | ||||||||||||||||||||||
(in thousands, except per share amounts) | Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Net income allocated to participating securities |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||
Dividends on Series A convertible preferred stock | ( | — | ( | — | ( | — | ( | — | |||||||||||||||||
Net loss available to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Basic Weighted-Average Shares Outstanding |
| |
| |
| |
| |
| |
| |
| |
| | |||||||||
Dilutive effect of stock options and ESPP |
| — |
| — |
| — |
| — | |||||||||||||||||
Diluted Weighted-Average Shares Outstanding |
| |
| |
| |
| | |||||||||||||||||
Loss per share | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
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The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, was
8. | INVENTORIES |
Inventories consist of the following as of:
June 30, | December 31, | ||||||
(in thousands) |
| 2022 |
| 2021 |
| ||
Raw materials | $ | | $ | | |||
Packaging materials |
| |
| | |||
Work-in-progress |
| |
| | |||
Finished goods |
| |
| | |||
| |
| | ||||
Reserve for excess/obsolete inventories |
| ( |
| ( | |||
Inventories, net | $ | | $ | | |||
Vendor Concentration
We source the raw materials for our products, including active pharmaceutical ingredients (“API”), from both domestic and international suppliers. Generally, only a single source of API is qualified for use in each product due to the cost and time required to validate a second source of supply. As a result, we are dependent upon our current vendors to reliably supply the API required for on-going product manufacturing. During the three and six months ended June 30, 2022, we purchased approximately
9. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill
As a result of our 2013 merger with BioSante Pharmaceuticals, Inc. (“BioSante”), we recorded goodwill of $
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Intangible Assets
The components of net definite-lived intangible assets and net indefinite-lived intangible assets other than goodwill are as follows:
June 30, 2022 | December 31, 2021 | Weighted Average | |||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Amortization | |||||||||||
(in thousands) |
| Amount |
| Amortization |
| Amount |
| Amortization |
| Period | |||||
Definite-Lived Intangible Assets: | |||||||||||||||
Acquired ANDA intangible assets | $ | | $ | ( | $ | | $ | ( |
| years | |||||
NDAs and product rights |
| |
| ( |
| |
| ( |
| years | |||||
Marketing and distribution rights |
| |
| ( |
| |
| ( |
| years | |||||
Non-compete agreement |
| |
| ( |
| |
| ( |
| years | |||||
Customer relationships | | ( | | ( | years | ||||||||||
Indefinite-Lived Intangible Assets: | |||||||||||||||
In process research and development | | — | | — | Indefinite | ||||||||||
Total Intangible Assets, net | $ | | $ | ( | $ | | $ | ( | years | ||||||
The definite-lived Abbreviated New Drug Applications (“ANDAs”), New Drug Applications (“NDAs”) and product rights, marketing and distribution rights, customer relationships, and non-compete agreement are stated at cost, net of amortization, and generally amortized over their remaining estimated useful lives, ranging from to
Amortization expense was $
We test for impairment of definite-lived intangible assets and indefinite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable. In the three and six months ended June 30, 2022, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $
Expected future amortization expense is as follows:
(in thousands) |
| ||
2022 (remainder of the year) | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 and thereafter |
| | |
Total | $ | |
Expected amortization expense is an estimate. Actual amounts of amortization expense may differ due to timing of regulatory approvals related to IPRD assets, additional intangible assets acquired, impairment of intangible assets, and other events.
23
10. | MEZZANINE AND STOCKHOLDERS’ EQUITY |
Stockholders’ Equity
Authorized shares
We are authorized to issue up to
There were
There were
Mezzanine Equity
PIPE Shares
Concurrently with the execution of the Merger Agreement, and as financing for a portion of the acquisition, on March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”), pursuant to which we agreed to issue and sell to the PIPE Investor, and the PIPE Investor agreed to purchase,
The PIPE Shares accrue dividends at
In case of a liquidation event, the holder of the PIPE Shares will be entitled to receive, in preference to holders of our common stock, the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the amount the holder of the PIPE Shares would have received in the liquidation event if it had converted its PIPE Shares into our common stock. The PIPE Shares will have voting rights, voting as one series with our common stock, on as-converted basis, and will have separate voting rights on any (i) amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate”) that adversely amends and relates solely to the terms of the PIPE Shares and (ii) issuance of additional Series A convertible preferred stock. In case of a change of control of ANI, the PIPE Shares will be redeemed at the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the change of control
24
transaction consideration that the holder of the PIPE Shares would have received if it had converted into our common stock.
There were
11. | STOCK-BASED COMPENSATION |
Employee Stock Purchase Plan
In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan. As of June 30, 2022, we had
The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our accompanying unaudited interim condensed consolidated statements of operations:
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Cost of sales | $ | | $ | | $ | | $ | | |||||
Research and development |
| |
| |
| |
| | |||||
Selling, general, and administrative |
| |
| |
| |
| | |||||
$ | | $ | | $ | | $ | | ||||||
Stock Incentive Plan
Equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2022 Stock Incentive Plan (the “2022 Plan”), which was approved by our stockholders at the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) held on April 27, 2022. Prior to this approval, we had been granting equity-based incentive awards under our Sixth Amended and Restated 2008 Stock Incentive Plan (the “Existing Plan”). The 2022 Plan was amended to, among other things, increase the number of shares reserved for issuance thereunder by
From time to time, we may grant stock options to employees through an inducement grant outside of our 2022 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”). The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant date. The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.
The following table summarizes stock-based compensation expense incurred under the 2022 Plan and Inducement Grants included in our accompanying unaudited interim condensed consolidated statements of operations:
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Cost of sales | $ | | $ | | $ | | $ | | |||||
Research and development |
| |
| |
| |
| | |||||
Selling, general, and administrative |
| |
| |
| |
| | |||||
$ | | $ | | $ | | $ | | ||||||
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A summary of stock option and restricted stock activity under the 2022 Plan and Inducement Grants during the six months ended June 30, 2022 and 2021 is presented below:
(in thousands) | Options | Inducement Grants | RSAs | ||||
Outstanding at December 31, 2020 |
| | | | |||
Granted |
| | | | |||
Options Exercised/RSAs Vested |
| ( | — | ( | (1) | ||
Forfeited |
| ( | — | ( | |||
Expired |
| — | — | — | |||
Outstanding at June 30, 2021 |
| | | | |||
Outstanding at December 31, 2021 |
| | | | |||
Granted |
| | — | | |||
Options Exercised/RSAs Vested |
| ( | — | ( | (2) | ||
Forfeited |
| ( | — | ( | |||
Expired |
| — | — | — | |||
Outstanding at June 30, 2022 |
| | | |
| (1) | Includes |
| (2) | Includes |
12. | INCOME TAXES |
We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of June 30, 2022, we had provided a valuation allowance against consolidated net deferred tax assets of $
We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We have not identified any uncertain income tax positions that could have a material impact on the consolidated financial statements. We recognize interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense; we did not have any such amounts accrued as of June 30, 2022 and December 31, 2021. We are subject to taxation in various U.S. jurisdictions, Canada, and India and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.
For interim periods, we recognize an income tax provision/(benefit) based on our estimated annual effective tax rate, calculated on a worldwide consolidated basis, expected for the entire year. The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for estimated changes in temporary and
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estimated permanent differences, and excludes certain discrete items whose tax effect, when material, is recognized in the interim period in which they occur. These changes in temporary differences, permanent differences, and discrete items result in variances to the effective tax rate from period to period. We also have elected to exclude the impacts from significant pre-tax non-recognized subsequent events from our interim estimated annual effective rate until the period in which they occur. Our estimated annual effective tax rate changes throughout the year as our on-going estimates of pre-tax income, changes in temporary differences, and permanent differences are revised, and as discrete items occur. Global Intangible Low-Taxed Income (“GILTI”), as defined in the Tax Cuts and Jobs Act of 2017, generated from our Canadian and Indian operations is subject to U.S. taxes, with certain defined exemptions, thresholds and credits. For financial reporting purposes we have elected to treat GILTI inclusions as a period cost.
For the three months ended June 30, 2022, we recognized an income tax benefit of $
For the three months ended June 30, 2021, we recognized an income tax benefit of $
For the six months ended June 30, 2022, we recognized an income tax benefit of $
For the six months ended June 30, 2021, we recognized an income tax benefit of $
13. | COMMITMENTS AND CONTINGENCIES |
Operating Leases
All our existing leases as of June 30, 2022 are classified as operating leases. As of June 30, 2022, we had 13 material operating leases for facilities and office equipment with remaining terms expiring from 2022 through 2027 and a weighted average remaining lease term of
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Rent expense for the three and six months ended June 30, 2022 and 2021 consisted of the following:
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 | 2021 | |||||
Operating lease costs | $ | | $ | | $ | | $ | | ||||
Variable lease costs |
| |
| |
| |
| | ||||
Total lease costs | $ | | $ | | $ | | $ | | ||||
A maturity analysis of our operating leases follows:
(in thousands) |
| ||
Future payments: | |||
2022 | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and thereafter |
| | |
Total | $ | | |
Discount | ( | ||
Lease liability | | ||
( | |||
Non-current lease liability | $ | |
Government Regulation
Our products and facilities are subject to regulation by a number of federal and state governmental agencies, such as the Drug Enforcement Administration (“DEA”), the Food and Drug Administration (“FDA”), the Centers for Medicare and Medicaid Services (“CMS”), Health Canada, the Central Drugs Standard Control Organization (“CDSCO”), The Narcotics Control Bureau (“NCB”), and India’s Ministry of Health and Family Welfare (“MoHFW”). The FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products. The DEA, Health Canada, and NCB maintain oversight over our products that are considered controlled substances.
Unapproved Products
Two of our products, Esterified Estrogen with Methyltestosterone (“EEMT”) and Opium Tincture, are marketed without approved NDAs or ANDAs. During the three months ended June 30, 2022 and 2021, net revenues for these products totaled $
In addition, one group of products that we manufacture on behalf of a contract customer is marketed by that customer without an approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. Our contract manufacturing revenues for the group of unapproved products for the three months ended June 30, 2022 and 2021 were $
Legal proceedings
We are involved, and from time to time may become involved, in various disputes, governmental and/or regulatory inquiries, investigations, government reimbursement related actions and litigation. These matters are complex and subject to significant uncertainties. As such, we cannot accurately predict the outcome, or the effects of the legal proceedings described below. While we believe that we have valid claims and/or defenses in the litigation and other
28
matters described below, litigation is inherently unpredictable, and the outcome of the proceedings could result in losses, including substantial damages, fines, civil or criminal penalties and injunctive or administrative remedies. We intend to vigorously prosecute and/or defend these matters, as appropriate; however, from time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in our best interests. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material adverse effect on our results of operations and/or cash flows in any given accounting period or on our overall financial condition.
Some of these matters with which we are involved are described below, and unless otherwise disclosed, we are unable to predict the outcome of the matter or to provide an estimate of the range of reasonably possible material losses. We record accruals for loss contingencies to the extent we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
From time to time, we are also involved in other pending proceedings for which, in our opinion based upon facts and circumstances known at the time, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to our results, and therefore remain undisclosed. If and when any reasonably possible losses associated with the resolution of such other pending proceedings, in our opinion, become material, we will disclose such matters.
Furthermore, like many pharmaceutical manufacturers, we are periodically exposed to product liability claims. The prevalence of these claims could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business, financial condition, and operating results. Recent trends in the product liability and director and officer insurance markets is to exclude matters related to certain classes of drugs. Our policies have been subject to such exclusions which place further potential risk of financial loss on us.
Legal fees for litigation-related matters are expensed as incurred and included in the consolidated statements of operations under the selling, general, and administrative expense line item.
Commercial Litigation
In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court for the District of Minnesota. The complaint alleged false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code, and Minnesota State law, under the premise that we sold an unapproved Erythromycin Ethylsuccinate (“EES”) product during the period between September 27, 2016 and November 2, 2018. The complaint sought a trial by jury and monetary damages (inclusive of actual and consequential damages, treble damages, disgorgement of ANI profits, and legal fees) of an unspecified amount. Discovery in this action closed on March 31, 2019 and trial was scheduled to commence on August 25, 2021. On August 3, 2021, the Company entered into a Settlement Agreement with Arbor Pharmaceuticals, LLC to resolve all claims related to Civil Action 17-4910, Arbor Pharmaceuticals, LLC (“Arbor”) v. ANI Pharmaceuticals, Inc., which was pending trial in the United States District Court for the District of Minnesota. Under the terms of the agreement, ANI paid Arbor $
On December 3, 2020, class action complaints were filed against the Company on behalf of putative classes of direct and indirect purchasers of the drug Bystolic. On December 23, 2020, six individual purchasers of Bystolic, CVS, Rite Aid, Walgreen, Kroger, Albertsons, and H-E-B, filed complaints against the Company. On March 15, 2021, the plaintiffs in these actions filed amended complaints. All amended complaints are substantively identical. The plaintiffs in these actions allege that, beginning in 2012, Forest Laboratories, the manufacturer of Bystolic, entered into anticompetitive agreements when settling patent litigation related to Bystolic with seven potential manufacturers of a generic version of Bystolic: Hetero, Torrent, Alkem/Indchemie, Glenmark, Amerigen, Watson, and various of their corporate parents, successors, subsidiaries, and affiliates. ANI itself was not a party to patent litigation with Forest concerning Bystolic and did not settle patent litigation with Forest. The plaintiffs named the Company as a defendant based on the Company’s January 8, 2020 Asset Purchase Agreement with
29
Amerigen. The complaints alleged that the 2013 patent litigation settlement agreement between Forest and Amerigen violated federal and state antitrust laws and state consumer protection laws by delaying the market entry of generic versions of Bystolic. Plaintiffs alleged they paid higher prices as a result of delayed generic competition. Plaintiffs sought damages, trebled or otherwise multiplied under applicable law, injunctive relief, litigation costs and attorneys’ fees. The complaints did not specify the amount of damages sought from the Company or other defendants and the Company at this early stage of the litigation cannot reasonably estimate the potential damages that the plaintiffs will seek. The cases have been consolidated in the United States District Court for the Southern District of New York as In re Bystolic Antitrust Litigation, Case No. 20-cv-005735 (LJL). On April 23, 2021, the Company and other defendants filed motions to dismiss the amended complaints. On January 24, 2022, the court dismissed all claims brought by the plaintiffs without prejudice. The court granted the plaintiffs until February 22, 2022 to file amended complaints, which were filed in federal court in the Southern District of New York, on that date. The newly amended complaints contain substantially similar claims. On April 19, 2022, the Company and other defendants filed motions to dismiss the newly amended complaints. On May 23, 2022, the plaintiffs filed oppositions to the motions to dismiss and, on June 24, 2022, the Company and other defendants filed replies to those oppositions. The motions to dismiss are now fully briefed and pending with the court. The Company disputes any liability in these matters.
On March 24, 2021, Azurity Pharmaceuticals, Inc. (“Azurity”) filed a complaint in the United States District Court for the District of Minnesota against ANI Pharmaceuticals, Inc., asserting that ANI’s vancomycin hydrochloride oral solution drug product infringes U.S. Patent No. 10,688,046. The complaint sought injunctive relief, damages, including lost profits and/or royalty, treble damages, and attorneys’ fee and costs. On February 15, 2022, the Company entered into a settlement agreement with Azurity to resolve all claims related to this action. Under the terms of the agreement, Azurity granted ANI a non-exclusive, non-transferable, non-sublicensable, royalty-bearing license under its Patents to sell ANI product in the United States and dismissed the action with prejudice. In exchange, we paid Azurity $1.9 million of royalties from past sales and we will pay Azurity a royalty equal to 20% of gross margin of sales of the ANI product for a contractually defined term. We paid the settlement from cash on hand and the $
On April 1, 2021, United Therapeutics Corp. and Supernus Pharmaceuticals, Inc. (“UTC/Supernus”) filed a complaint in the United States District Court for the District of Delaware against ANI Pharmaceuticals, Inc., asserting that ANI’s proposed Treprostinil extended release drug product, which is subject to ANI’s Abbreviated New Drug Application No. 215667, infringes U.S. Patent Nos. 7,417,070, 7,544,713, 8,252,839, 8,349,892, 8,410,169, 8,747,897, 9,050,311, 9,278,901, 9,393,203, 9,422,223, 9,593,066 and 9,604,901 (“the Asserted Patents”). The complaint seeks injunctive relief, attorneys' fee and costs. ANI filed its answer and counterclaims on May 28, 2021, denying UTC/Supernus’ allegations and seeking declaratory judgment that ANI has not infringed any valid and enforceable claim of the Asserted Patents, that the Asserted Patents are invalid, and an award of attorneys’ fees and costs. On May 26, 2022, the parties’ respective claims and counterclaims were dismissed pursuant to a confidential settlement agreement.
Industry Related Litigation
In July 2020, ANI and Novitium were served with a complaint brought in the First Judicial Court, County of Santa Fe, State of New Mexico by the Office of the Attorney General of the State of New Mexico against manufacturers and sellers of ranitidine products. The complaint asserts a public nuisance claim and a negligence claim against the generic ranitidine manufacturer defendants, including ANI and Novitium. The public nuisance claim asserts that the widespread sale of ranitidine products in the state created a public nuisance that requires a state-wide medical monitoring program of New Mexico residents for the development of colorectal cancer, stomach cancer, gastrointestinal disorders and liver disease. As damages, New Mexico asks that the defendants fund this medical monitoring program. The negligence claims assert that the defendants were negligent in selling the product, essentially alleging that it was unreasonable to have the product on the market. With respect to that claim, New Mexico asserts that it paid for ranitidine products through state-funded insurance and health-care programs. On December 15, 2020, the case was removed to federal court and transferred to the In re Zantac multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida. New Mexico moved for
30
remand to state court. The MDL court granted the remand motion on February 25, 2021. On April 16, 2021, New Mexico filed an amended complaint in the New Mexico First Judicial District Court in Santa Fe County. It did not name ANI in the amended complaint, effectively voluntarily dismissing ANI from the action. Novitium is named as a Defendant in the amended complaint. According to Novitium’s records, Novitium sold approximately 42 bottles of ranitidine indirectly into New Mexico, and received no funds from any state funded health care plan or Medicaid. The Defendants filed a motion to dismiss the claims asserted in the New Mexico litigation based primarily on preemption. The motion was denied in August 2021.
In December 2020, the City of Baltimore served ANI and Novitium with a complaint against manufacturers and sellers of ranitidine products. The City of Baltimore complaint, which was filed in the Circuit Court for Baltimore City, tracks the allegations of the New Mexico complaint. The Baltimore action was removed to federal court and transferred to the In re Zantac MDL on February 1, 2021. The City of Baltimore moved for remand, which was granted on April 1, 2021. The parties stipulated to allow the City of Baltimore to file an amended complaint in the Circuit Court of Maryland for Baltimore City in “due course,” without a specific filing deadline. On June 23, 2021, the City of Baltimore filed an amended complaint. The City of Baltimore did not name ANI in its amended complaint, effectively voluntarily dismissing ANI from the action. Novitium was named as a defendant in the amended complaint. Defendants in the Baltimore action filed a motion to dismiss on based primarily on preemption to which Novitium joined. The motion was granted as to all generic manufacturer defendants on January 28, 2022, and all claims against Novitium were dismissed with prejudice. The deadline for the City of Baltimore to file an appeal was February 28, 2022.
ANI and Novitium dispute any liability in these matters.
Product Liability Related Litigation
All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the FDA’s February 2009 Black Box warning requirement (“legacy claims”). All these original legacy claims were settled or closed out, including a series of claims in California that were resolved by coordinated proceeding and settlement. Our insurance company assumed the defense of the legacy claims and paid all losses in settlement of the California legacy claims. In March 2019, we were served with a lawsuit in the Superior Court of California, County of Riverside, adding us as a defendant in a complaint filed in July 2017 that is alleged not to have been part of the original settled legacy claims. This new claim was dismissed with prejudice in July 2021 and the matter is now closed.
In June 2020, ANI was served with a personal injury complaint in the case of Koepsel v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-80882-RLR, filed in the United States District Court for Southern District of Florida, in which the plaintiff alleges that he developed kidney cancer in 2018 as a result of taking over the counter medication containing ranitidine. The Koepsel action was filed within an existing multidistrict litigation concerning ranitidine-containing drugs pending in the Southern District of Florida before Judge Robin L. Rosenberg, In re Zantac MDL, 20 MDL 2924. A Master Personal Injury Complaint (“MPIC”) in that MDL that was filed on June 22, 2020 also named ANI and Novitium as defendants. ANI was dismissed from the Koepsel case on August 21, 2020 and was dismissed from the MPIC on September 8, 2020. On December 31, 2020, after ANI was dismissed, the district court dismissed the MPIC claims against generic manufacturer defendants partially with prejudice and partially with leave to replead. The failure to warn and design defect claims were dismissed with prejudice on preemption grounds. An Amended Master Personal Injury Complaint was filed on February 8, 2021, which did not name ANI but did name Novitium. By opinion dated July 8, 2021, the district court dismissed all claims against the generic manufacturer defendants with prejudice on preemption grounds. That decision is on appeal to the Eleventh Circuit Court of Appeals.
ANI and Novitium were named in other individual personal injury complaints filed in MDL 20 MD 2924 in which plaintiffs allege that they developed cancer after taking prescription and over the counter medication containing ranitidine. ANI was served with complaints in five of those additional cases: Cooper v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81130-RLR (served September 30, 2020),
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Lineberry v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81079-RLR (served August 20, 2020), Lovette v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81040-RLR (served August 26, 2020), Hightower v. Pfizer, et al, MDL No. 20-MD-2924, Case No. 9-20-cv-82214-RLR (served December 16, 2020) and Bird v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9-20-cv-80837-RLR (served December 30, 2020). We have informed counsel for the plaintiffs that ANI did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited two-month period of time, from July 2019 to September 2019. ANI’s product was voluntarily recalled in January 2020. Each of the plaintiffs in the five pending cases alleges a cancer diagnosis prior to the time that ANI sold ranitidine, and we have informally sought dismissal from these cases on that basis. ANI was voluntarily dismissed from the Cooper, Lineberry and Lovette actions on November 20, 2020. ANI was voluntarily dismissed from the Bird action on March 15, 2021 and from the Hightower action on March 29, 2021.
Novitium has been named in 155 short form complaints filed by claimants in the MDL. Those complaints were effectively dismissed with prejudice with the MPIC on July 8, 2021. Counsel for the plaintiffs have been notified that Novitium did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited period of time, from December 2018 until September 2019. Novitium’s product was voluntarily recalled in October 2019. Out of the 155 short form complaints, approximately 111 plaintiffs either were diagnosed with cancer before Novitium began manufacturing the product, only took over the counter ranitidine, or took ranitidine before Novitium began manufacturing it. Two of those 111 plaintiffs dismissed Novitium from their short form complaints. In light of the Court’s dismissal of all claims with prejudice, Novitium has not pursued dismissal of the short form complaints against it at this time.
On February 3, 2022, a complaint was filed in Cook County, Illinois, naming Novitium as a defendant. The complaint incorrectly identifies Novitium as a “repackager.” The case is styled Ross v. Boehringer Ingelheim Pharmaceuticals, Inc., et. al. The complaint asserts claims of strict liability/failure to warn, strict liability/design defect, negligent failure to warn, negligent product design, general negligence, negligent misrepresentation, breach of express and implied warranties, and unjust enrichment. The plaintiff alleges that he was diagnosed with prostate cancer in 2017 – before Novitium began selling generic ranitidine products -- and that he took over the counter ranitidine that he purchased at Walgreens from 2008 to 2019. At this point, the allegations show that the plaintiff’s alleged cancer injury could not have come from a Novitium product. The generic manufacturer defendants filed a motion to dismiss on preemption grounds, which has not been fully briefed, and is still pending.
ANI and Novitium dispute any liability in these MDL matters.
Other Industry Related Matters
On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce documents and possibly testify relating to a federal investigation of the
generic pharmaceutical industry. We have been cooperating and intend to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
14. | FAIR VALUE DISCLOSURES |
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.
The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of our funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities) approximate their carrying values because of their short-term nature. The Term Facility bears an interest rate that
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fluctuates with the changes in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying values of these borrowings approximated their fair values at June 30, 2022.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Contingent Value Rights
Our contingent value rights (“CVRs”), which were granted coincident with our merger with BioSante and expire in June 2023, are considered contingent consideration and are classified as liabilities. As such, the CVRs were recorded as purchase consideration at their estimated fair value, using level 3 inputs, and are marked to market each reporting period until settlement. The fair value of CVRs is estimated using the present value of our projection of the expected payments pursuant to the terms of the CVR agreement, which is the primary unobservable input. If our projection or expected payments were to increase substantially, the value of the CVRs could increase as a result. The present value of the liability was calculated using a discount rate of
Interest Rate Swap
The fair value of our interest rate swap is estimated based on the present value of projected future cash flows using the LIBOR forward rate curve. The model used to value the interest rate swap includes inputs of readily observable market data, a Level 2 input. As described in detail in Note 6, the fair value of the interest rate swap was a $
Contingent Consideration
In connection with the acquisition of Novitium, we may pay up to $
The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:
Payment Type | Valuation Technique | Unobservable Input | Assumptions | |||||
Profit-based milestone payments | Probability-weighted discounted cash flow | Discount rate | ||||||
Projected fiscal year of payment | 2023-2029 | |||||||
Product development-based milestone payments | Probability-weighted discounted cash flow | Discount rate | ||||||
Probability of payment | ||||||||
Projected fiscal year of payment | 2023-2024 |
The following table presents the changes in contingent consideration balances classified as Level 3 balances for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Beginning balance | $ | | $ | — | $ | | $ | — | |||||
Measurement period adjustment | — | — | | — | |||||||||
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Change in fair value |
| ( |
| — |
| ( |
| — | |||||
Ending balance | $ | | $ | — | $ | | $ | — |
The following table presents our financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:
(in thousands) | Fair Value at | |||||||||||
Description | June 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||
Assets |
|
|
|
|
|
|
|
| ||||
Interest rate swap | $ | | $ | — | $ | | $ | — | ||||
Liabilities |
|
|
|
|
|
|
|
| ||||
Contingent consideration | $ | | $ | — | $ | — | $ | | ||||
CVRs | $ | — | $ | — | $ | — | $ | — | ||||
| Fair Value at |
|
|
| ||||||||
Description | December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||
Liabilities |
|
|
|
|
|
|
|
| ||||
Contingent consideration | $ | | $ | — | $ | — | $ | | ||||
Interest rate swaps | $ | | $ | — | $ | | $ | — | ||||
CVRs | $ | — | $ | — | $ | — | $ | — | ||||
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We do not have any financial assets and liabilities that are measured at fair value on a non-recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
We do not have any non-financial assets and liabilities that are measured at fair value on a recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We measure our long-lived assets, including property, plant, and equipment, ROU assets, intangible assets, and goodwill, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. No such fair value impairment was recognized in the three and six months ended June 30, 2022 and 2021.
Acquired Non-Financial Assets Measured at Fair Value
In April 2021, we acquired three NDAs and an ANDA and certain related inventories from Sandoz, Inc. for total consideration of $
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15. | PURIFIED CORTROPHIN GEL PRE-LAUNCH CHARGES |
In January 2016, we acquired the right, title and interest in the NDAs for Cortrophin Gel and Cortrophin-Zinc. Subsequently, we assembled a Cortrophin Gel re-commercialization team of scientists, executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin API, executed a long-term supply agreement with an API manufacturer, with whom we have advanced the manufacture of corticotropin API via manufacture of commercial-scale batches, and executed a long-term commercial supply agreement with a current good manufacturing practice (“cGMP”) aseptic fill contract manufacturer.
Prior to the third quarter 2019, all purchases of material, including pig pituitary glands and API, related to the re-commercialization efforts were consumed in research and development activities and recognized as research and development expense in the period in which they were incurred. In the third quarter of 2019, we began purchasing materials that are intended to be used commercially in anticipation of FDA approval of Cortrophin Gel and the resultant product launch. The FDA granted approval of the sNDA of this product on October 29, 2021. Prior to FDA approval, under U.S. GAAP, we were prohibited from capitalizing these pre-launch purchases of materials as inventory, and accordingly, they were charged to expense in the period in which they were incurred. Subsequent to approval, these purchases are recorded as inventory at net realizable value. During the three and six months ended June 30, 2021, we recognized $
16. RELATED PARTY TRANSACTIONS
On March 8, 2021, we entered into an Equity Commitment and Investment Agreement with the PIPE Investor, pursuant to which we agreed to issue and sell
In connection with our acquisition of Novitium, we entered into employment agreements with the two executives and founders of Novitium, Muthusamy Shanmugam and Chad Gassert. Both serve as executive officers of the Company and Mr. Shanmugam also serves on the Company’s board of directors. Mr. Shanmugam holds a minority interest in Scitus Pharma Services (“Scitus”), which provides clinical research services to Novitium, majority interest in SS Pharma LLC (“SS Pharma”), which acquires and supplies API to Novitium, majority interest in Esjay Pharma LLC (“Esjay”), which provides research and development and facilities consulting services, and a minority interest in Nuray Chemical Private Limited (“Nuray”), which manufactures and supplies API to Novitium. Mr. Gassert holds a minority interest in Scitus. During the three months ended June 30, 2022, we paid Esjay an immaterial amount, paid SS Pharma $
17. SEGMENT REPORTING
An operating segment is defined as a component of an entity that engages in business activities from which it may recognize revenues and incur expense, its operating results are regularly reviewed by the entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and its discrete financial information is available. Prior to 2022, based on this definition, we had concluded that we had
35
| ● | Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other. |
| ● | Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Cortrophin Gel. |
Our CODM evaluates our two operating segments based on revenues and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”), exclusive of corporate expenses and other expenses not directly allocated or attributable to an operating segment. These expenses include, but are not limited to, certain management, legal, accounting, human resources, insurance, and information technology expenses.
We do not manage assets of the Company by operating segment and our CODM does not review asset information by operating segment. Accordingly, we do not present total assets by operating segment.
Financial information by reportable segment, including historical information that has been retroactively re-cast to reflect our two operating segments, is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(in thousands) |
| 2022 |
| 2021 | 2022 |
| 2021 | |||||
Net Revenues | ||||||||||||
Generics, Established Brands, and Other | $ | | $ | | $ | | $ | | ||||
Rare Disease | | — | | — | ||||||||
Total net revenues | $ | | $ | | $ | | $ | | ||||
Segment earnings/(loss) before interest, taxes, depreciation and amortization (“EBITDA”) and reconciliation to (loss)/income before income taxes | ||||||||||||
Generics, Established Brands, and Other | | | | | ||||||||
Rare Disease | ( | ( | ( | ( | ||||||||
Depreciation and amortization | ( | ( | ( | ( | ||||||||
Corporate and other unallocated expenses(1) | ( | ( | ( | ( | ||||||||
Total operating loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Interest expense, net | ( | ( | ( | ( | ||||||||
Other income/(expense), net | | ( | | ( | ||||||||
Loss before benefit for income taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||
| (1) | Includes expenses not directly allocated or attributable to a reporting segment, including certain management, legal, accounting, human resources, insurance, and information technology expenses, and are included in selling, general, and administrative expenses in our unaudited interim consolidated statement of operations. |
Geographic Information
Our operations are located in the United States, Canada, and India. The majority of the assets of the Company are located in the United States.
The following table depicts the Company’s revenue by geographic operations during the following periods:
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
Location of Operations |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
United States | $ | | $ | | $ | | $ | | |||||
Canada |
| |
| |
| |
| | |||||
Total Revenue | $ | | $ | | $ | | $ | | |||||
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The following table depicts the Company’s property and equipment, net according to geographic location as of:
(in thousands) | June 30, 2022 | December 31, 2021 | ||||
United States | $ | | $ | | ||
Canada(1) |
| |
| | ||
India |
| |
| | ||
Total property and equipment, net | $ | | $ | | ||
| (1) | Amounts as of June 30, 2022 exclude the land and building at our Canada facility, which are classified as held for sale as of June 30, 2022. These assets have a carrying value of $ |
18. SUBSEQUENT EVENT
On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and the accompanying notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”), as well as the information contained under Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Risk Factors” contained in the 2021 Annual Report, and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q , and other information provided from time to time in our other filings with the SEC. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” in our 2021 Annual Report and this Quarterly Report on Form 10-Q.
EXECUTIVE OVERVIEW
ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building a successful Cortrophin Gel franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities. Our four pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by first quarter 2023. This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021. We will transition the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.
Strategy
Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors. Our growth strategy is driven by the following key pillars:
Building a successful Purified Cortrophin Gel franchise
We acquired the NDAs for Cortrophin gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin active pharmaceutical ingredient (“API”), a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin gel fill/finish contract manufacturer. During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA.
On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin® Gel (Repository Corticotropin Injection USP) for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin.
During 2021 and the first half of 2022, we invested in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. In the fourth quarter of 2021 and first half of 2022, we hired a significant number of new employees and assembled and trained our rare disease field force. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S. As
38
a result of the build out of our rare disease team, our expenditures in support of these efforts will be significantly higher in 2022 as compared to 2021.
Strengthening our generics business with enhanced research and development capability and increased focus on niche opportunities
We have grown our generics business through a combination of market share gains on existing products and new product launches. We have also successfully acquired numerous ANDAs through business and asset acquisitions, including, most recently, our acquisition of Novitium Pharma LLC (“Novitium”), including its portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce. We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and Competitive Generic Therapy designation filings. Additionally, we will continue to seek opportunities to enhance our capabilities through strategic partnerships and acquisitions of assets and businesses.
Maximizing the value from our established brands through innovative “go-to-market” (“GTM”) strategies and continued programmatic acquisitions
We have acquired the New Drug Applications (“NDAs”) for and market Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, Oxistat, Veregen, and Pandel. We are innovating in our GTM strategy through creative partnerships. In addition, we will continue to explore opportunities in acquiring new brands to grow our established brands portfolio.
Expansion of contract development and manufacturing organization (“CDMO”) business by leveraging our unique manufacturing capabilities
We built a CDMO business through our sites in Baudette, Minnesota and grew it through acquisitions. Our U.S.-based manufacturing and unique capabilities in high-potency, hormonal, steroid, and oncolytic products can be leveraged to expand our CDMO business.
The pillars of our strategy are enabled by an empowered, collaborative, and purposeful team with a high performance-orientation.
Product Development Considerations
We consider a variety of criteria in determining which products to develop, all of which influence the level of competition upon product launch. These criteria include:
| ● | Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture. |
| ● | Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges. |
| ● | Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit. |
| ● | Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products. |
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| ● | Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products. |
| ● | Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete. |
Recent Developments
Restructuring Update
On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023. This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021. We will transition the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.
Operating Segment Update
Prior to 2022, we had concluded that we had one operating segment. Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Cortrophin Gel, we determined that we now have two operating segments as follows:
| ● | Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products (“CDMO”), product development services, royalties, and other. |
| ● | Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Cortrophin Gel. |
Product Launches
Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments.
Asset Acquisition
On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $8.0 million plus an immaterial amount for the purchase of API and finished goods inventory. The transaction was funded from cash on hand.
COVID-19 Impact
We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on our business and the geographic regions where we operate. While total market generic and brand prescriptions were depressed in earlier parts of 2021 as subsequent waves and variants of the virus impacted patient and customer behavior, prescriptions returned to pre-pandemic levels in late 2021 and into 2022. We continue to see disruptions to our supply chain from the COVID-19
40
pandemic during 2022, including significant lead times for purchases of materials. The pandemic has not impacted our access to capital and has not significantly impacted our use of funds.
We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future financial condition, results of operations and cash flows due to numerous uncertainties, including the continued duration of the pandemic, the appearance of additional variants of the virus, the level of success of continued actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
GENERAL
Impacts to our 2022 and 2021 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below. Our results of operations for the three and six months ended June 30, 2022 were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date. The acquisition provides additional revenues and the incurrence of increased costs, including but not limited to the amortization of intangible assets acquired, other operating costs, and increased interest costs on borrowings used to finance the transaction. During the three and six months ended June 30, 2022, Novitium operations generated $19.9 million and $39.1 million in net revenues, respectively.
The following table summarizes our results of operations for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net revenues | $ | 73,855 | $ | 48,625 | $ | 138,332 | $ | 103,146 | ||||
Operating expenses |
|
|
|
| ||||||||
Cost of sales (exclusive of depreciation and amortization) |
| 35,294 |
| 22,314 |
| 69,565 |
| 42,299 | ||||
Research and development |
| 4,165 |
| 2,805 |
| 9,439 |
| 5,773 | ||||
Selling, general, and administrative |
| 31,958 |
| 18,820 |
| 60,775 |
| 36,407 | ||||
Depreciation and amortization |
| 13,764 |
| 11,324 |
| 28,321 |
| 22,222 | ||||
Contingent consideration fair value adjustment | (1,095) | — | (342) | — | ||||||||
Legal settlement expense | — | 8,400 | — | 8,400 | ||||||||
Purified Cortrophin Gel pre-launch charges |
| — |
| 515 |
| — |
| 553 | ||||
Restructuring activities | 2,570 | — | 2,570 | — | ||||||||
Intangible asset impairment charge | 112 | — | 112 | — | ||||||||
Operating loss |
| (12,913) |
| (15,553) |
| (32,108) |
| (12,508) | ||||
Interest expense, net |
| (6,669) |
| (2,531) |
| (13,282) |
| (4,985) | ||||
Other income/(expense), net |
| 764 |
| (67) |
| 675 |
| (582) | ||||
Loss before benefit for income taxes |
| (18,818) |
| (18,151) |
| (44,715) |
| (18,075) | ||||
Benefit for income taxes |
| 3,895 |
| 4,045 |
| 9,662 |
| 4,055 | ||||
Net loss | $ | (14,923) | $ | (14,106) | $ | (35,053) | $ | (14,020) | ||||
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The following table sets forth, for all periods indicated, items in our unaudited interim condensed consolidated statements of operations as a percentage of net revenues:
Three Months Ended |
| Six Months Ended |
| |||||||
June 30, |
| June 30, |
| |||||||
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
| |
Net revenues |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Operating expenses |
|
|
|
|
|
|
|
| ||
Cost of sales (exclusive of depreciation and amortization) |
| 47.8 | % | 45.9 | % |
| 50.3 | % | 41.0 | % |
Research and development |
| 5.6 | % | 5.8 | % |
| 6.8 | % | 5.6 | % |
Selling, general, and administrative |
| 43.3 | % | 38.7 | % |
| 43.9 | % | 35.3 | % |
Depreciation and amortization |
| 18.6 | % | 23.3 | % |
| 20.5 | % | 21.5 | % |
Contingent consideration fair value adjustment | (1.5) | % | — | % | (0.2) | % | — | % | ||
Legal settlement expense | — | % | 17.3 | % | — | % | 8.1 | % | ||
Purified Cortrophin Gel pre-launch charges |
| — | % | 1.1 | % |
| — | % | 0.5 | % |
Restructuring activities | 3.5 | % | — | % | 1.9 | % | — | % | ||
Intangible asset impairment charge |
| 0.2 | % | — | % |
| 0.1 | % | — | % |
Operating loss |
| (17.5) | % | (32.1) | % |
| (23.3) | % | (12.0) | % |
Interest expense, net |
| (9.0) | % | (5.2) | % |
| (9.6) | % | (4.8) | % |
Other income/(expense), net |
| 1.0 | % | (0.1) | % |
| 0.5 | % | (0.6) | % |
Loss before benefit for income taxes |
| (25.5) | % | (37.4) | % |
| (32.4) | % | (17.4) | % |
Benefit for income taxes |
| 5.3 | % | 8.3 | % |
| 7.0 | % | 3.9 | % |
Net loss |
| (20.2) | % | (29.1) | % |
| (25.4) | % | (13.5) | % |
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
Net Revenues
Three Months Ended June 30, |
| |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Generics, Established Brands, and Other Segment | ||||||||||||
Generic pharmaceutical products | $ | 49,863 | $ | 34,199 | $ | 15,664 |
| 45.8 | % | |||
Established brand pharmaceutical products |
| 8,463 |
| 11,038 |
| (2,575) |
| (23.3) | % | |||
Contract manufacturing |
| 4,389 |
| 2,322 |
| 2,067 |
| 89.0 | % | |||
Royalty and other |
| 938 |
| 1,066 |
| (128) |
| (12.0) | % | |||
Generics, established brands, and other segment total net revenues | $ | 63,653 | $ | 48,625 | $ | 15,028 | 30.9 | % | ||||
Rare Disease Segment | ||||||||||||
Rare disease pharmaceutical products | $ | 10,202 | — | $ | 10,202 | NM | (1) | |||||
Total net revenues | $ | 73,855 | $ | 48,625 | $ | 25,230 |
| 51.9 | % | |||
| (1) | Not meaningful |
We derive substantially all of our revenues from sales of generic, established brand, and rare disease pharmaceutical products, contract manufacturing, royalties on net sales of certain products, and other services, including development services, and laboratory services. Many of our established brand products face competition from generic products and we expect them to continue to face competition from generic products in the future. Our generic products face competition from other generic products and we expect them to continue to face competition in the future. The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability. Increased competition generally results in decreased average selling prices of generic and brand products over time. In addition, due to strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains.
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Our rare disease pharmaceutical product, Purified Cortrophin Gel, competes in the ACTH therapeutic category against one principal brand competitor.
Net revenues for the three months ended June 30, 2022 were $73.9 million compared to $48.6 million for the same period in 2021, an increase of 51.9%, primarily as a result of the following factors:
| ● | Net revenues for generic pharmaceutical products were $49.9 million during the three months ended June 30, 2022, an increase of 45.8% compared to $34.2 million for the same period in 2021. From a product perspective, the increase was substantially driven by revenues from commercial generic products acquired in our acquisition of Novitium, including Prazosin, Prednisone, Famotidine, Oxybutynin Chloride, Dapsone, and various other products. The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021. Increases were tempered by a decrease in revenues from sales of Nicardipine and Esterified Estrogen with Methyltestosterone (“EEMT”) as well as several other legacy ANI generic products. The increase in net generic revenues was principally due to an increase in volumes and tempered by a decrease in average selling prices. |
| ● | Net revenues for established brand pharmaceutical products were $8.5 million during the three months ended June 30, 2022, a decrease of 23.3% compared to $11.0 million for the same period in 2021. From a product perspective, the net decrease was driven by a decrease in sales of InnoPran XL and Inderal XL. These decreases were tempered by an increase in sales of Inderal LA and Atacand. The decrease in revenues for the three months ended June 30, 2022 was principally due to prior period adjustments or change in estimates to variable consideration, including returns and rebates. |
| ● | Contract manufacturing revenues were $4.4 million during the three months ended June 30, 2022, an increase of 89.0% compared to $2.3 million for the same period in 2021, due to an increase in the volume of orders, primarily related to the addition of Novitium contract manufacturing revenues. |
| ● | Royalty and other revenues were $0.9 million during the three months ended June 30, 2022, a decrease of $0.1 million from $1.1 million for the same period in 2021, primarily due to decreases in product development revenues earned by ANI Canada. Royalty and other revenues in 2022 primarily consist of $0.3 million of royalty revenues related to Novitium arrangements and $0.5 million of product development service revenues. |
| ● | Net revenues of rare disease pharmaceutical products, which consist entirely of sales of Purified Cortrophin Gel, were $10.2 million during the three months ended June 30, 2022, as the product was launched in late January 2022. There were no sales of rare disease pharmaceutical products during the comparable prior year period. |
Cost of Sales (Excluding Depreciation and Amortization)
Three Months Ended June 30, |
| |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Cost of sales (excl. depreciation and amortization) | $ | 35,294 | $ | 22,314 | $ | 12,980 |
| 58.2 | % | |||
Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging components, and royalties related to profit-sharing arrangements. Cost of sales does not include depreciation and amortization expense, which is reported as a separate component of operating expenses on our unaudited interim condensed consolidated statements of operations.
For the three months ended June 30, 2022, cost of sales increased to $35.3 million from $22.3 million for the same period in 2021, an increase of $13.0 million, or 58.2%. The increase is primarily due to increased volumes of generic products, including $7.9 million of costs related to activity of Novitium during the three months ended June 30, 2022 with no comparable activity in the prior year period and an increase of $2.0 million related to increased sales of products subject to profit sharing arrangements. During the three months ended June 30, 2022 and 2021, we recognized $1.0
43
million and $1.5 million, respectively, in cost of sales representing the excess of fair value over cost for inventory acquired in acquisitions and subsequently sold during the three months ended June 30, 2022 and 2021.
Cost of sales, exclusive of the $1.0 million and $1.5 million net impact related to excess of fair value over the cost of inventory sold during the three months ended June 30, 2022 and 2021, respectively, as a percentage of net revenues increased to 46.5% during the three months ended June 30, 2022, from 42.8% during same period in 2021, primarily as a result of increased generic volumes in a period of declining average selling prices across generic and brand products and increased sales of products with profit sharing arrangements. These increases were tempered by sales of the rare disease pharmaceutical products which have higher margins.
During the three months ended June 30, 2022, we purchased approximately 18% of our inventory from one supplier. As of June 30, 2022, our amount payable to this supplier was $6.3 million. During the three months ended June 30, 2022 and 2021, no single vendor represented more than 10% of inventory purchases.
Other Operating Expenses
Three Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Research and development | $ | 4,165 | $ | 2,805 | $ | 1,360 |
| 48.5 | % | |||
Selling, general, and administrative |
| 31,958 |
| 18,820 |
| 13,138 |
| 69.8 | % | |||
Depreciation and amortization |
| 13,764 |
| 11,324 |
| 2,440 |
| 21.5 | % | |||
Contingent consideration fair value adjustment | (1,095) | — | (1,095) | NM | (1) | |||||||
Legal settlement expense | — | 8,400 | (8,400) | (100.0) | % | |||||||
Purified Cortrophin Gel pre-launch charges |
| — |
| 515 |
| (515) |
| (100.0) | % | |||
Restructuring activities | 2,570 | — | 2,570 | NM | (1) | |||||||
Intangible asset impairment charge | 112 | — | 112 | NM | (1) | |||||||
Total other operating expenses | $ | 51,474 | $ | 41,864 | $ | 9,610 |
| 23.0 | % | |||
| (1) | Not meaningful |
Other operating expenses consist of research and development costs, selling, general, and administrative expenses, depreciation and amortization, contingent consideration fair value adjustment, legal settlement expense, Purified Cortrophin Gel pre-launch charges, restructuring activities, and intangible asset impairment charges.
For the three months ended June 30, 2022, other operating expenses increased to $51.5 million from $41.9 million for the same period in 2021, an increase of $9.6 million, or 23.0%, primarily as a result of the following factors:
| ● | Research and development expenses increased from $2.8 million to $4.2 million, an increase of 48.5%, primarily due to expenses related to the Novitium activities during the three months ended June 30, 2022 and no comparable expenses in the three months ended June 30, 2021, and tempered by a $0.9 million decrease in expense associated with our Cortrophin development efforts. |
| ● | Selling, general, and administrative expenses increased from $18.8 million to $32.0 million, an increase of $13.1 million, or 69.8%, primarily due to a $12.4 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increased expenses primarily related to the addition of Novitium headcount and activities during the three months ended June 30, 2022, with no comparable expenses in the 2021 period, and tempered by a $1.6 million decrease in transaction expenses related to the Novitium acquisition. |
| ● | Depreciation and amortization expense was $13.8 million for the three months ended June 30, 2022, compared to $11.3 million for the same period in 2021, an increase of $2.4 million. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition. |
| ● | As described in Note 14, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent |
44
| consideration fair value adjustment of $1.1 million income in the three months ended June 30, 2022. The income is principally due to an increase in the discount rate and tempered by the passage of time. No contingent consideration fair value adjustment was recognized in the three months ended June 30, 2021. |
| ● | As described in Note 13, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a legal settlement expense of $8.4 million income related to the Arbor commercial matter in the three months ended June 30, 2021. No legal settlement expense was recognized in the three months ended June 30, 2022. |
| ● | We recognized restructuring activities of $2.6 million of expense in the three months ended June 30, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 of other costs. No restructuring activities were recognized in the three months ended June 30, 2021. |
| ● | We recognized an impairment of $0.1 million in the three months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the three months ended June 30, 2021. |
Other Expense, net
Three Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Interest expense, net | $ | (6,669) | $ | (2,531) | $ | (4,138) |
| 163.5 | % | |||
Other income/(expense), net |
| 764 |
| (67) |
| 831 |
| (1,240.3) | % | |||
Total other expense, net | $ | (5,905) | $ | (2,598) | $ | (3,307) |
| 127.3 | % | |||
For the three months ended June 30, 2022, we recognized total other expense, net of $5.9 million versus total other expense of $2.6 million for the same period in 2021, an increase of $3.3 million. Interest expense, net for the three months ended June 30, 2022 consisted primarily of interest expense on borrowings under our Term Facility. Interest expense, net for the three months ended June 30, 2021 consisted primarily of interest expense on borrowings under our Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. The increase in interest expense is due to an increase in the debt outstanding during the three months ended June 30, 2022 coupled with an increased borrowing rate on the $300.0 million Term Facility as compared to the borrowing rate on the Prior Credit Agreement borrowings, and an increase in amortization of finance fees. During the three months ended June 30, 2022, there was $299.3 million of outstanding borrowings, compared to $184.6 million to $205.7 million during the comparable 2021 period. For the three months ended June 30, 2022 and 2021, there was less than $0.1 million of interest capitalized into construction in progress. Other income/(expense), net during the three months ended June 30, 2022 consists primarily of a $0.8 million gain on the sale of an ANDA.
Benefit for Income Taxes
Three Months Ended June 30, |
| |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Benefit for income taxes | $ | 3,895 | $ | 4,045 | $ | (150) |
| (3.7) | % | |||
Our provision for income taxes consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.
For the three months ended June 30, 2022, we recognized an income tax benefit of $3.9 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 20.7% to pre-tax consolidated loss of $18.8 million reported during the period, as well as the net effects of certain discrete items occurring in 2022 which impact our
45
income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended June 30, 2022.
For the three months ended June 30, 2021, we recognized an income tax benefit of $4.0 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 22.3% to pre-tax consolidated loss of $18.2 million reported during the period, reduced by the net effects of certain discrete items occurring in 2021
which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended June 30, 2021.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Net Revenues
Six Months Ended June 30, |
| |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Generics, Established Brands, and Other Segment | ||||||||||||
Generic pharmaceutical products | $ | 98,970 | $ | 66,812 | $ | 32,158 |
| 48.1 | % | |||
Established brand pharmaceutical products |
| 16,915 |
| 18,555 |
| (1,640) |
| (8.8) | % | |||
Contract manufacturing |
| 7,293 |
| 4,895 |
| 2,398 |
| 49.0 | % | |||
Royalty and other |
| 3,660 |
| 12,884 |
| (9,224) |
| (71.6) | % | |||
Generics, established brands, and other segment total net revenues | $ | 126,838 | $ | 103,146 | $ | 23,692 | 23.0 | % | ||||
Rare Disease Segment | ||||||||||||
Rare disease pharmaceutical products | $ | 11,494 | $ | — | $ | 11,494 | NM | (1) | ||||
Total net revenues | $ | 138,332 | $ | 103,146 | $ | 35,186 |
| 34.1 | % | |||
| (1) | Not meaningful |
Net revenues for the six months ended June 30, 2022 were $138.2 million compared to $103.1 million for the same period in 2021, an increase of 34.0%, primarily as a result of the following factors:
| ● | Net revenues for generic pharmaceutical products were $99.0 million during the six months ended June 30, 2022, an increase of 48.1% compared to $66.8 million for the same period in 2021. From a product perspective, the increase was principally driven by revenues from products acquired in our acquisition of Novitium, including Prazosin, Prednisone, Famotidine, Oxybutynin Chloride, Dapsone, and various other products. The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021. Increases were tempered by a decrease in revenues of Penicillamine, Propranolol Extended Release, EEMT, and Erythromycin Ethylsuccinate (“EES”). The increase in net generic revenues was principally due to an increase in volumes and tempered by a decrease in average selling prices. |
Generic prescription levels were suppressed when compared to pre-pandemic levels during the six months ended June 30, 2021, and primarily during the first quarter, which had a negative impact on our net sales of generic pharmaceutical products during the period. Prescriptions have returned to essentially pre-pandemic levels in 2022.
| ● | Net revenues for established brand pharmaceutical products were $16.9 million during the six months ended June 30, 2022, a decrease of 8.8% compared to $18.6 million for the same period in 2021. From a product perspective, the net decrease was driven by a decrease in sales of Casodex and InnoPran XL. These decreases were tempered by an increase in sales of Atacand. The decrease in revenues for the six months ended June 30, 2022 was principally due to prior period adjustments or change in estimates to variable consideration, including returns and rebates. |
Sales of our established brand products were negatively impacted by the COVID-19 pandemic during the six months ended June 30, 2021, and primarily during the first quarter, as mitigation measures and other related
46
actions suppressed prescription levels during the period. Brand prescriptions have returned to essentially pre-pandemic levels in 2022.
| ● | Contract manufacturing revenues were $7.3 million during the six months ended June 30, 2022, an increase of 49.0% compared to $4.9 million for the same period in 2021, due to an increase in the volume of orders, primarily related to Novitium contract manufacturing revenues in 2022 with no comparable revenues in 2021. |
| ● | Royalty and other revenues were $3.7 million during the six months ended June 30, 2022, a decrease of $9.2 million from $12.9 million for the same period in 2021, primarily due to the recognition of the final royalty of $11.2 million under the Kite Pharma, Inc. license agreement (Yescarta®) pursuant to the Tripartite Agreement in the six months ended June 30, 2021. Royalty revenue for the six months ended June 30, 2022 includes $2.1 million related to Novitium arrangements. There were no comparable revenues for this period in 2021. |
| ● | Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $11.5 million during the six months ended June 30, 2022, as the product was launched in late January 2022. There were no sales of rare disease pharmaceutical products during the comparable prior year period. |
Cost of Sales (Excluding Depreciation and Amortization)
Six Months Ended June 30, |
| |||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Cost of sales (excl. depreciation and amortization) | $ | 69,565 | $ | 42,299 | $ | 27,266 |
| 64.5 | % | |||
For the six months ended June 30, 2022, cost of sales increased to $69.6 million from $42.3 million for the same period in 2021, an increase of $27.3 million, or 64.5%. The increase is primarily due to increased volumes of generic products, including $17.4 million of costs related to activity of Novitium during the six months ended June 30, 2022 with no comparable activity in the prior year period, and $4.8 million in costs representing the excess of fair value over cost for inventory acquired in an asset acquisition and a business combination, of which $3.2 million relates to inventory acquired from Novitium and included in the previously discussed $17.4 million of cost of sales. Charges for the excess of fair value over cost for inventory acquired in an asset acquisition were $1.5 million for the comparable period in 2021. Sales of products subject to profit sharing arrangements also accounted for a $0.9 million increase in the current year period.
Cost of sales, exclusive of the $4.8 million net impact related to excess of fair value over the cost of inventory sold during the period, as a percentage of net revenues increased to 46.8% during the six months ended June 30, 2022, from 39.6% during same period in 2021, primarily as a result of increased volumes in a period of declining average selling prices across generic and brand products, $11.2 million in royalty revenue during the comparable 2021 period with no associated cost of goods sold, and higher costs related to sales of products subject to profit sharing arrangements.
During the six months ended June 30, 2022, we purchased 17% of our inventory from one supplier. As of June 30, 2022, our amount payable to this supplier was $6.3 million. During the six months ended June 30, 2021, no single vendor represented more than 10% of inventory purchases.
Other Operating Expenses
Six Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Research and development | $ | 9,439 | $ | 5,773 | $ | 3,666 |
| 63.5 | % | |||
Selling, general, and administrative |
| 60,775 |
| 36,407 |
| 24,368 |
| 66.9 | % | |||
Depreciation and amortization |
| 28,321 |
| 22,222 |
| 6,099 |
| 27.4 | % | |||
Contingent consideration fair value adjustment | (342) | — | (342) | NM | (1) | |||||||
Legal settlement expense | — | 8,400 | (8,400) | (100.0) | % | |||||||
Purified Cortrophin Gel pre-launch charges |
| — |
| 553 |
| (553) |
| (100.0) | % | |||
Restructuring activities | 2,570 | — | 2,570 | NM | (1) | |||||||
47
Intangible asset impairment charge | 112 | — | 112 | NM | (1) | |||||||
Total other operating expenses | $ | 100,875 | $ | 73,355 | $ | 27,520 |
| 37.5 | % |
| (1) | Not meaningful |
For the six months ended June 30, 2022, other operating expenses increased to $100.9 million from $73.4 million for the same period in 2021, an increase of $27.5 million, or 37.5%, primarily as a result of the following factors:
| ● | Research and development expenses increased from $5.8 million to $9.4 million, an increase of 63.5%, primarily due to expenses related to the Novitium activities during the six months ended June 30, 2022 and no comparable expenses in the six months ended June 30, 2021, and tempered by a $1.6 million decrease in expense associated with our Cortrophin development efforts due to approval and launch of the product. |
| ● | Selling, general, and administrative expenses increased from $36.4 million to $60.8 million, an increase of $24.4 million, or 66.9%, primarily due to $23.4 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increases related to the addition of Novitium headcount and activities during the six months ended June 30, 2022, with no comparable expenses in the 2021 period, and tempered by a $3.4 million decrease in transaction expenses related to the Novitium acquisition. |
| ● | Depreciation and amortization expense was $28.3 million for the six months ended June 30, 2022, compared to $22.2 million for the same period in 2021, an increase of $6.1 million. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition. |
| ● | As described in Note 14, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent consideration fair value adjustment of $0.3 million income in the six months ended June 30, 2022. The income is principally due to an increase in the discount rate and tempered by the passage of time. No contingent consideration fair value adjustment was recognized in the six months ended June 30, 2021. |
| ● | As described in Note 13, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a legal settlement expense of $8.4 million income related to the Arbor commercial matter in the three months ended June 30, 2021. No legal settlement expense was recognized in the six months ended June 30, 2022. |
| ● | We recognized restructuring activities of $2.6 million of expense in the six months ended June 30, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility. Costs included $1.4 million in termination benefits, $0.9 million in fixed asset impairments and accelerated depreciation, and $0.3 of other costs. No restructuring activities were recognized in the three months ended June 30, 2021. |
| ● | We recognized an impairment of $0.1 million in the six months ended June 30, 2022, in relation to an ANDA asset. No impairment charges were recognized in the six months ended June 30, 2021. |
Other Expense, net
Six Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Interest expense, net | $ | (13,282) | $ | (4,985) | $ | (8,297) |
| 166.4 | % | |||
Other income/(expense), net |
| 675 |
| (582) |
| 1,257 |
| (216.0) | % | |||
Total other expense, net | $ | (12,607) | $ | (5,567) | $ | (7,040) |
| 126.5 | % | |||
For the six months ended June 30, 2022, we recognized total other expense, net of $12.6 million versus total other expense of $5.6 million for the same period in 2021, an increase of $7.0 million. Interest expense, net for the six months ended June 30, 2022 consisted primarily of interest expense on borrowings under the Term Facility. Interest expense, net for the six months ended June 30, 2021 consisted primarily of interest expense on borrowings under our existing
48
Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. The increase in interest expense is due to an increase in the debt outstanding during the six months ended June 30, 2022 coupled with an increased borrowing rate on the $300.0 million Term Facility as compared to the borrowing rate on the Prior Credit Agreement borrowings and an increase in amortization of finance fees. During the six months ended June 30, 2022, there was $299.3 million to $300.0 million of outstanding borrowings, compared to $186.9 million to $205.7 million during the comparable 2021 period. For the six months ended June 30, 2022 and 2021, there was less than $0.1 million of interest capitalized into construction in progress. The $1.3 million change in other income/(expense), net is primarily related to a $0.8 million gain on the sale of an ANDA in the six months ended June 30, 2022 and the non-recurrence of $0.4 million of expense associated with the final royalty receipt on the Kite license agreement during the six months ended June 30, 2021.
Benefit for Income Taxes
Six Months Ended June 30, | ||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| Change |
| % Change |
| |||
Benefit for income taxes | $ | 9,662 | $ | 4,055 | $ | 5,607 |
| 138.3 | % | |||
For the six months ended June 30, 2022, we recognized an income tax benefit of $9.7 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 21.6% to pre-tax consolidated loss of $44.7 million reported during the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the six months ended June 30, 2022.
For the six months ended June 30, 2021, we recognized an income tax benefit of $4.1 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 22.4% to pre-tax consolidated loss of $18.1 million reported during the period, reduced by the net effects of certain discrete items occurring in 2021 which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the six months ended June 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Debt Financing
On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). The Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries.
The Term Facility proceeds were used to finance the cash portion of the consideration under the Merger Agreement, repay borrowings under our Prior Credit Agreement, and pay fees, costs and expenses incurred in connection with the acquisition of Novitium. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.
The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement, which includes a floor of 0.75%) in the case of loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Agreement) in the case of loans under the Revolving Facility. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the 12 months ended December 31, 2022. As of June 30, 2022,
49
$3.0 million of principal of the loan was recorded as current borrowings in the consolidated balance sheet. As of June 30, 2022, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing.
Equity Financing
Concurrently with the execution of the Merger Agreement, on March 8, 2021, we entered into that certain Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”) pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 25,000 shares of our Series A Convertible Preferred Stock , for a purchase price of $1,000 per share and an aggregate purchase price of $25 million, in a private placement issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.
In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million. The proceeds are being used to fund our Purified Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes.
We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of June 30, 2022, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.
Cash Flows
The following table summarizes the net cash and cash equivalents provided by/(used in) by operating activities, investing activities, and financing activities for the periods indicated:
Six Months Ended June 30, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Operating Activities | $ | (30,426) | $ | 20,909 | ||
Investing Activities | $ | (2,782) | $ | (22,687) | ||
Financing Activities | $ | (3,707) | $ | 18,173 | ||
Net Cash (Used In) / Provided by Operations
Net cash used in operating activities was $30.4 million for the six months ended June 30, 2022, compared to $20.9 million provided by operating activities during the same period in 2021, a decrease of $51.3 million. The decrease was driven by our net loss and net changes in working capital including increases to accounts receivable and inventory of $21.9 million and $10.9 million, respectively since December 31, 2021, due in part to a number of new product launches during the six months ended June 30, 2022.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 was $2.8 million, principally due to the $3.3 million of capital expenditures partially offset by $0.8 million of proceeds from the sale of long-lived assets during the period. Net cash used in investing activities for the six months ended June 30, 2021 was $22.7 million, principally due to
50
the acquisition of three NDAs and an ANDA from Sandoz, Inc. for $20.7 million in consideration and $1.6 million of capital expenditures during the period.
Net Cash (Used in) / Provided by Financing Activities
Net cash used in financing activities for the six months ended June 30, 2022 was $3.7 million, principally due to the $1.5 million maturity payments on the Term Facility, $1.6 million of treasury stock purchased in relation to restricted stock vests, and $0.8 million convertible preferred stock dividends paid. Net cash provided by financing activities was $18.2 million for the six months ended June 30, 2021, principally due to borrowings of $24.0 million on the Revolving Facility, $5.2 million of maturity payments on the term facilities related to our Prior Credit Agreement, and $0.8 million of treasury stock purchased in relation to restricted stock vests.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, and the depreciable lives of long-lived assets.
A summary of our significant accounting policies is included in Part II, Item 8. Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
A discussion of the recently issued accounting pronouncements is described in Note 1, Business, Presentation, and Recent Accounting Pronouncements, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.
CONTRACTUAL OBLIGATIONS
As of June 30, 2022, our contractual obligations have not changed materially from the amounts reported in our most recent Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks include interest rate risk, equity risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Of these risks, interest rate risk, equity risk, and foreign currency exchange rate risk could have a significant impact on our results of operations.
51
On November 19, 2021, we entered into the Credit Agreement, which is secured by substantially all of the personal property and certain material real property owned by ANI and our wholly-owned domestic subsidiaries, and obligations under the Credit Agreement are guaranteed by certain of our wholly-owned domestic subsidiaries.
The Term Facility proceeds were used to finance a portion of the consideration under the Merger Agreement, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the acquisition. Proceeds from the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.
The Term Facility matures on the six-year anniversary of November 19, 2021 (the “Closing Date”) and the Revolving Facility matures on the five-year anniversary of the Closing Date. The Revolving Facility and the Term Facility each permit both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Revolving Facility.
The Credit Agreement contains usual and customary representations and warranties of the parties for credit facilities of this type, subject to customary exceptions and materiality standards. In addition, we are required to maintain, a total net leverage ratio not to exceed 4.75:1.00 and, solely with respect to the Revolving Facility, (a) during the period beginning on October 1, 2022 and ending on September 30, 2023, a total net leverage ratio not to exceed 4.50:1.00 and (b) for all periods thereafter, a total net leverage ratio not to exceed 4.25:1.00.
The Credit Agreement also contains certain customary covenants and events of default, as well as, in the event of an occurrence of an event of default under the Credit Agreement, customary remedies for the lenders, including the acceleration of any amounts outstanding under the Credit Agreement.
In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Facility with Truist Bank, the interest rate swap with a notional value of $158.6 million was novated and is now with Truist Bank and is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. We are exposed to interest rate risk on the unhedged portion of our Term Facility and if interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $1.4 million. If our Revolving Facility were fully drawn and interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $0.4 million. The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. As a result of the interest rate swap, our exposure to interest rate volatility is minimized.
We are exposed to risks associated with changes in interest rates. The returns from certain of our cash and cash equivalents will vary as short-term interest rates change. A 100 basis-point adverse movement (decrease) in short-term interest rates would decrease the interest income earned on our cash balance in the quarter ended June 30, 2022 by approximately $2,000.
We are exposed to risks associated with foreign currency exchange rate risks as we remeasure certain Canadian dollar-denominated and Indian rupee-denominated transactions from ANI Pharmaceuticals Canada Inc. and our Indian subsidiary from the Canadian dollar to the U.S. dollar and the Indian-rupee to the U.S. dollar. Changes in exchange rates can positively or negatively impact our revenue, income, assets, liabilities, and equity. Currency exchange rates did not have a material impact on our revenue, income, assets, liabilities, or equity during the quarter ended June 30, 2022.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.
On November 19, 2021, we acquired all the issued and outstanding equity interests of Novitium Pharma LLC (“Novitium”). In conjunction with the transaction, we are currently in the process of integrating Novitium’s policies, processes, people, technology, and operations into the consolidated company, and integrating Novitium’s operations into our system of internal control over financial reporting, resulting in certain newly implemented or adapted controls.
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to Note 13, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, please carefully consider the factors described under the heading “Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 in Part I, Item 1A. Risk Factors. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
Maximum Number (or | ||||||||||
Total Number of | approximate dollar | |||||||||
Shares Purchased as | value) of Shares | |||||||||
Total Number | Part of Publicly | that may yet be | ||||||||
of Shares | Average Price | Announced Plans or | Purchased Under the | |||||||
Period |
| Purchased(1) |
| Paid per Share |
| Programs |
| Plans or Programs | ||
April 1 - April 30, 2022 | 15,057 | $ | 29.89 | — | $ | — | ||||
May 1 - May 31, 2022 | 780 | $ | 25.28 | — | $ | — | ||||
June 1 - June 30, 2022 | 567 | $ | 23.77 | — | $ | — | ||||
Total | 16,404 | $ | 29.46 | — |
| |||||
(1) Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The exhibits listed in the Index to Exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.
INDEX TO EXHIBITS
Exhibit No. |
| Description |
10.1 | Employment Agreement between Meredith Cook and the Company, dated June 21, 2022. | |
10.2 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101 | The following financial information from this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2022 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ANI Pharmaceuticals, Inc. (Registrant) | |||
Date: | August 8, 2022 | By: | /s/ Nikhil Lalwani |
Nikhil Lalwani | |||
President and | |||
Chief Executive Officer | |||
(principal executive officer) | |||
Date: | August 8, 2022 | By: | /s/ Stephen P. Carey |
Stephen P. Carey | |||
Senior Vice President, Finance and | |||
Chief Financial Officer | |||
(principal financial and accounting officer) | |||
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