ANI Pharmaceuticals Reports Third Quarter and Year-To-Date 2018 Results and Reaffirms Guidance

ANI Pharmaceuticals Reports Third Quarter and Year-To-Date 2018 Results and Reaffirms Guidance

BAUDETTE, Minn., Nov. 6, 2018 /PRNewswire/ --

For the third quarter 2018:

Record net revenues of $50.7 million, an increase of 5% as compared to the same period in 2017

GAAP net income of $5.0 million and diluted GAAP earnings per share of $0.42

Adjusted non-GAAP EBITDA of $21.4 million

Adjusted non-GAAP diluted earnings per share of $1.29

ANI Pharmaceuticals, Inc. ( ANI ) (NASDAQ: ANIP) today reported its financial results for the three and nine months ended September 30, 2018 and reaffirmed its 2018 financial guidance. The Company will host its

earnings conference call this morning, November 6, 2018, at 10:30 AM ET. Investors and other interested parties can join the call by dialing (866) 776-8875. The conference ID is 3193426.

Arthur S. Przybyl, President and CEO, stated,

ANI had a strong third quarter, generating record net revenues. Our year-to-date results include record net revenues, an increase of 11% over the prior year period, record adjusted non-GAAP EBITDA, an increase of 14% over the prior year period, and record adjusted non-GAAP diluted earnings per share, an increase of 32% over the prior year period. Our balance sheet and cash flows remain robust and we continue to seek acquisitive opportunities to augment our internal growth.

Since our last earnings release we have launched three new generic products: Cholestyramine, and authorized generics of Brethine and Atacand HCT . This year we have launched seven generic products, increasing our total generic drug portfolio to 31 products.

Recently, we launched two brand products and now have a portfolio of 11 brand products sold under the ANI label. In September, we filed our prior approval supplement with the FDA for Vancocin Oral Solution and our work continues to progress on re-commercializing Cortrophin and filing the supplemental NDA in the first quarter of 2020.

Finally, in August, ANI acquired Wellspring Pharma Services to expand our contract manufacturing and development business. We are currently integrating that business and look forward to making further use of the manufacturing facility to advance work on our pipeline products.

ANI Reaffirms Guidance for the Full Year 2018

ANI's estimates are based upon actual results for the nine months ending September 30, 2018 and projected results for the remaining three months of the year. ANI's full

year 2018 guidance reflects management's current assumptions regarding customer relationships, product pricing, prescription trends, competition, inventory levels, cost of sales, operating costs, timing of research and development spend, taxes, and the anticipated timing of future product launches, integration and contribution of recent acquisitions and other key events. For the twelve months ending December 31, 2018, ANI is providing guidance on net revenue, adjusted non-GAAP EBITDA and adjusted non-GAAP diluted earnings per share.

The following table summarizes 2018 guidance:

($ in millions except per share data)

Generic Pharmaceutical

Third Quarter Revenue Results and Update

Revenues from sales of generic pharmaceuticals decreased 1%, to $30.3 million from $30.5 million in the prior period, primarily due to volume decreases for Fenofibrate, EEMT, and Nilutamide, tempered by the second quarter 2018 launch of Ezetimibe-Simvastatin. To date in 2018, ANI has launched seven generic products: Candesartan Hydrochlorothiazide (the authorized generic of Atacand HCT ), Terbutaline Sulfate (the authorized generic of Brethine ), Morphine Sulfate Oral Solution, Cholestyramine for Oral Suspension, Ezetimibe-Simvastatin, Desipramine, and Felbamate, increasing its generic commercialized product portfolio to a total of 31 products.

Key Generic Pipeline Products

Branded Pharmaceutical Products

Third Quarter Revenue Results and Update

Revenues from sales of branded pharmaceuticals decreased 7%, to $14.6 million from $15.7 million in the prior period, primarily due to lower unit sales and price of Inderal LA and lower unit sales of Vancocin , tempered by sales of Casodex and Arimidex , which were launched in July 2018, as well as

sales of Inderal XL and InnoPran XL , both of which were acquired in the first quarter of 2017 and which were re-launched under the ANI label in the first quarter of 2018. In October, ANI launched two additional branded products in the ANI label, Atacand and Atacand HCT , increasing the number of branded products sold under the ANI label to eleven.

Key Brand Pipeline Products

Vancocin Oral Solution Update

ANI is currently advancing a commercialization effort for Vancocin oral solution. ANI filed a prior approval supplement ( PAS ) in September 2018. This product will be manufactured at ANI's site in Baudette, Minnesota and will compete in a market that currently exceeds $450 million annually.

Cortrophin Gel Re-commercialization

In the third quarter of 2018, ANI continued commercial scale manufacturing of Corticotropin API. Thus far, commercial scale Corticotropin API appears to be consistent with the pilot scale batches previously manufactured, and moreover, consistent with legacy API batches that had been manufactured previously. The Company is on track to initiate API process validation, viral clearance validation, and API registration batch manufacturing in the first quarter of 2019.

ANI has finalized development of all API and drug product analytical methods to be used to support the API characterization package. Analytical methods to be used for batch release and stability have also been developed and will be validated prior to initiation of process validation and registration batch manufacturing, specifically by the first quarter of 2019 for API and the second quarter of 2019 for

The Company continued to manufacture Cortrophin Gel finished dose drug product, which has been placed on stability. Commercial scale drug product manufacturing activities are scheduled to begin in the fourth quarter of 2018, utilizing API that was also manufactured at commercial scale. ANI is on track to initiate media fill simulations in the first quarter of 2019 and drug product process validation and registration batch manufacturing in the second quarter of 2019.

ANI is on track to file a supplemental NDA by the first quarter of 2020.

For further details, please see ANI's Cortrophin Gel Re-commercialization Milestone Update in Table 5.

Contract Manufacturing

Third Quarter Revenue Results and Update

Contract manufacturing revenue increased by 55% to $2.8 million from $1.8 million in the prior year

period, primarily due to the impact of contract manufacturing revenue from our Canadian subsidiary, ANI Pharmaceuticals Canada Inc. ( ANI Canada ). Through our ANI Canada subsidiary, we acquired WellSpring Pharma Services Inc. ( WellSpring ), a Canadian company located in Oakville, Ontario that performs contract development and manufacturing of pharmaceutical products, in August 2018. With an employee base of about 100, ANI Pharmaceuticals Canada Inc. (formerly WellSpring) is a well-established contract development and manufacturing facility with capabilities in solid oral, semi-solids, and liquids that operates out of a 100,000 square foot site that ANI acquired as part of the transaction. ANI Canada has a diverse customer base, focused on both brand and generic drug products. The site manufactures drug product for both the U.S. and Canadian prescription drug markets

and has substantial capacity.

Royalty and Other Income

Third Quarter Revenue Result and Update

Royalty and other income increased to $3.0 million from $0.1 million, primarily due to the royalties received on sales of Atacand and Atacand HCT . These product royalties will decrease as a direct result of ANI transferring these products into the ANI label branded product. In addition, during the three months ended September 30, 2018, we recognized $0.5 million of royalties from sales and milestones related to Gilead's Yescarta product, as further described below. In addition, the three months ended September 30, 2018 include the impact of product development services and laboratory services revenue from our ANI Canada subsidiary.

Key Royalty Product: Yescarta

ANI is entitled to a percentage of global

Yescarta net sales as well as a portion of certain product milestones, such as the recent positive opinion issued by the European Medicines Agency ( EMA ) Committee for Medicinal Products for Human Use ( CHMP ).

Third Quarter Results

For the three months ended September 30, 2018, ANI reported net revenues of $50.7 million, an increase of 5% from $48.2 million in the prior year period, due to the following factors:

Revenues from sales of generic pharmaceuticals decreased 1%, to $30.3 million from $30.5 million in the prior period, primarily due to volume decreases for Fenofibrate, EEMT, and Nilutamide, tempered by the second quarter 2018

launch of Ezetimibe-Simvastatin.

Revenues from sales of branded pharmaceuticals decreased 7%, to $14.6 million from $15.7 million in the prior period, primarily due to lower unit sales and price of Inderal LA and lower unit sales of Vancocin , tempered by sales of Casodex and Arimidex , which were launched in July 2018, as well as sales of Inderal XL and InnoPran XL , both of which were acquired in the first quarter of 2017 and re-launched under the ANI label in the first quarter of 2018.

Contract manufacturing revenue increased by 55% to $2.8 million from $1.8 million in the prior year period, primarily due to the results of our ANI Canada subsidiary.

Royalty and other income increased to $3.0 million from $0.1 million, due to the royalties received on sales of Atacand , Atacand HCT , royalties from

Yescarta sales and milestones, and the impact of product development services and laboratory services revenue from our ANI Canada subsidiary.

Operating expenses increased to $40.6 million for the three months ended September 30, 2018, from $38.8 million in the prior year period. The increase was primarily due to a $3.7 million increase in selling, general, and administrative as compared with the prior period, as a result of increases in personnel and related costs and $0.9 million of costs associated with the WellSpring acquisition and integration. Research and development expense increased by $2.0 million as compared with the prior period, primarily as a result of increased work on development projects, primarily the Cortrophin Gel re-commercialization project and work on the ANDAs acquired in the asset purchase agreement with Impax/Amneal. In addition,

depreciation and amortization increased by $1.4 million due to the amortization of the product rights for Atacand , Atacand HCT , Arimidex , and Casodex , which were acquired in December 2017. These increases were partially offset by the $5.5 million decrease in cost of sales, due to decreased sales of products subject to profit-sharing arrangements, as well as the $2.8 million impact in 2017 of costs of sales related to the excess of fair value over cost on Inderal XL and InnoPran XL inventory, the impact of which did not continue in the third quarter of 2018.

Cost of sales as a percentage of net revenues decreased to 31% during the three months ended September 30, 2018, from 38% during same period in 2017, excluding the $44 thousand of net inventory step-up costs relating to contract manufacturing sales in our ANI Canada entity in the third

quarter of 2018 and $2.8 million of net inventory step-up costs related to sales of Inderal XL, InnoPran XL , and Inderal LA in the third quarter of 2017. The decrease was primarily due to increased royalty income and lower sales of products subject to profit-sharing arrangements.

Net income was $5.0 million for the three months ended September 30, 2018, as compared to net income of $4.7 million in the prior year period. The effective tax rate for the three months ended September 30, 2018 was 21%.

Diluted earnings per share for the three months ended September 30, 2018 was $0.42, based on 11,804 thousand diluted shares outstanding, as compared to diluted earnings per share of $0.40 in the prior year period. Adjusted non-GAAP diluted earnings per share was $1.29, as compared to adjusted non-GAAP diluted earnings per share of $1.11 in the prior year period.

For a reconciliation of adjusted non-GAAP diluted earnings per share to the most directly comparable GAAP financial measure, please see Table 4.

Results for Nine Months Ended September 30, 2018

For the nine months ended September 30, 2018, ANI reported net revenues of $144.5 million, an increase of 11% from $129.6 million in the prior year period, due to the following factors:

Revenues from sales of generic pharmaceuticals decreased 6%, to $83.7 million from $88.6 million in the prior period, primarily due to volume decreases for Fenofibrate, EEMT, and Nilutamide, as well as sales decreases

for Propranolol ER driven by price, tempered by the second quarter 2018 launch of Ezetimibe-Simvastatin and the second quarter 2017 launch of Diphenoxylate Hydrochloride and Atropine Sulfate.

Revenues from sales of branded pharmaceuticals increased 18%, to $41.7 million from $35.4 million in the prior period, primarily due to sales of Inderal XL and InnoPran XL , both of which were acquired in the first quarter of 2017, and which were re-launched under our label in the first quarter of 2018, as well as sales of Casodex and Arimidex , which were launched in July 2018, tempered by to lower unit sales of Inderal LA and Vancocin .

Contract manufacturing revenue increased by 6% to $5.5 million from $5.2 million in the prior year period, primarily due to the impact of contract manufacturing sales from our ANI Canada subsidiary, partially

offset by the timing of orders.

Royalty and other income increased to $13.6 million from $0.4 million, primarily due to the royalties received on sales of Atacand , Atacand HCT , Arimidex , and Casodex , as well as royalties from Yescarta sales and milestones.

Operating expenses increased to $120.5 million for the nine months ended September 30, 2018, from $108.6 million in the prior year period. The increase was primarily due to a $8.0 million increase in selling, general, and administrative as compared with the prior period, as a result of increases in personnel and related costs and $1.3 million of costs associated with the WellSpring acquisition and integration. Research and development expense increased by $5.5 million as compared with the prior period, primarily as a result of $1.3 million of in-process research and development,

which was recognized as research and development expense in relation to the asset acquisition from Impax/Amneal, as well as increased work on development projects, primarily the Cortrophin Gel re-commercialization project and work on the ANDAs acquired in the asset purchase agreement with Impax/Amneal. In addition, depreciation and amortization increased by $4.2 million due primarily to the amortization of the product rights for Atacand , Atacand HCT , Arimidex , and Casodex , which were acquired in December 2017.

Excluding the $5.7 million of net inventory step-up, primarily related to the sales and write off Inderal XL and InnoPran XL in the nine months ended September 30, 2018 and $7.5 million of net inventory step-up costs related to sales of Inderal XL, InnoPran XL , and Inderal LA in the nine months ended September 30,

2017, cost of sales as a percentage of net revenues decreased to 33% during the nine months ended September 30, 2018, from 39% during same period in 2017, primarily due to increased royalty revenues, change in product mix towards higher-margin brand products, and lower sales of products subject to profit-sharing arrangements.

Net income was $10.1 million for the nine months ended September 30, 2018, as compared to net income of $8.6 million in the prior year period. The effective tax rate for the nine months ended September 30, 2018 was 21%.

Diluted earnings per share for the nine months ended September 30, 2018 was $0.85, based on 11,767 thousand diluted shares outstanding, as compared to diluted earnings per share of $0.73 in the prior year period. Adjusted non-GAAP diluted earnings per share was $3.74, as compared to adjusted non-GAAP diluted earnings per share of $2.83

in the prior year period. For a reconciliation of adjusted non-GAAP diluted earnings per share to the most directly comparable GAAP financial measure, please see Table 4.

Selected Balance Sheet Data

ANI generated $39.8 million of positive cash flows from operations in the nine months ended September 30, 2018. In December 2017, ANI entered into a credit agreement with Citizens Bank, N.A. that included a $75 million term loan and a

$50 million line of credit. The $75 million term loan was used to pay down ANI's former $25.0 million line of credit and to purchase from AstraZeneca AB and AstraZeneca UK Limited the right, title, and interest in the NDAs and the U.S. rights to market Atacand , Atacand HCT , Arimidex , and Casodex , for $46.5 million in cash. The $50 million line of credit currently remains undrawn. In April 2018, ANI purchased from IDT Australia, Limited the ANDAs for 23 previously-marketed generic drug products and API for four of the acquired products for $2.7 million in cash and a single-digit royalty on net profits from sales of one of the products. In May 2018, ANI purchased from Impax/Amneal the approved ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized, the development

package for one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending approval, and certain manufacturing equipment required to manufacture one of the products, for $2.3 million in cash. In August 2018, ANI acquired WellSpring. As a result of the transaction, ANI acquired WellSpring's pharmaceutical manufacturing facility, laboratory, and offices, current book of commercial business, as well as an organized workforce for a purchase price of $18 million, subject to customary adjustments. Subject to further adjustments, estimated consideration was $17.3 million, paid with cash on hand.

ANI Product Development Pipeline

ANI's pipeline consists of 75 products, addressing a total annual market size of $4.5 billion, based on data from IQVIA. Of these 75 products, 70 were acquired and of these

acquired products, ANI expects that 54 can be commercialized based on either CBE-30s or prior approval supplements filed with the FDA.

Non-GAAP Financial Measures

The Company's fiscal 2018 guidance for adjusted non-GAAP EBITDA and adjusted non-GAAP diluted earnings per share is not reconciled to the most comparable GAAP measure. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in a reconciliation to the most directly comparable forward-looking GAAP financial measures. Because a reconciliation is not available without unreasonable effort, it is not included in this release.

Adjusted non-GAAP EBITDA

ANI's management considers adjusted non-GAAP EBITDA to be an important financial indicator of ANI's operating performance, providing investors and analysts with a useful measure

of operating results unaffected by non-cash stock-based compensation and differences in capital structures, tax structures, capital investment cycles, ages of related assets, and compensation structures among otherwise comparable companies. Management uses adjusted non-GAAP EBITDA when analyzing Company performance.

Adjusted non-GAAP EBITDA is defined as net income/(loss), excluding tax expense, interest expense, depreciation, amortization, the excess of fair value over cost of acquired inventory, stock-based compensation expense, expense from acquired in-process research and development, transaction and integration expenses, and other income / expense. Adjusted non-GAAP EBITDA should be considered in addition to, but not in lieu of, net income or loss reported under GAAP. A reconciliation of adjusted non-GAAP EBITDA to the most directly comparable GAAP financial measure is

provided in Table 3.

Adjusted non-GAAP Net Income