UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March
31, 2015
| ¨ | TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from
to .
Commission File
Number 001-31812
ANI PHARMACEUTICALS, INC.
(Exact name of registrant
as specified in its charter)
Delaware |
|
58-2301143 |
(State or other jurisdiction of
incorporation or organization) |
|
(IRS Employer Identification Number) |
210 Main Street West
Baudette, Minnesota
(Address of principal executive offices)
(218) 634-3500
(Registrant’s telephone number including
area code)
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. YES x NO ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted 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 and post such files). YES x NO ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ |
|
Accelerated filer x |
|
|
|
Non-accelerated filer ¨ |
|
Smaller reporting company ¨ |
(Do not check if smaller reporting company) |
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨
NO x
As of May 1, 2015, there were 11,414,517
shares of common stock and 10,864 shares of class C special stock of the registrant outstanding.
ANI PHARMACEUTICALS, INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended March
31, 2015
TABLE OF CONTENTS
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 Exchange Act. Such statements include, but are not
limited to, statements about future operations, products, financial position, operating results, prospects, pipeline or potential
markets therefor, 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.
Uncertainties and risks may cause our actual results to
be materially different than those expressed in or implied by such forward-looking statements. Uncertainties and risks include,
but are not limited to, the risk that we may face with respect to importing raw materials, increased competition, delays or failure
in obtaining product approval from the U.S. Food and Drug Administration ("FDA"), general business and economic conditions,
market trends, product development, regulatory and other approvals and marketing.
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, 2014, including the factors described in “Item 1A. Risk Factors,” as well as our proxy statement,
filed with the SEC on April 24, 2015. Other risks may be described from time to time in our filings made under 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.
NOTE REGARDING TRADEMARKS
Cortenema®, Lithobid®, Reglan®,
and Vancocin® are registered trademarks subject to trademark protection and are owned by ANI.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(in thousands, except share and per
share amounts)
(unaudited)
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Assets | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 165,563 | | |
$ | 169,037 | |
Accounts receivable, net of $8,096 and $8,708 of adjustments
for chargebacks and other allowances at March 31, 2015 and December 31, 2014, respectively | |
| 17,371 | | |
| 17,297 | |
Inventories, net | |
| 10,737 | | |
| 7,518 | |
Deferred tax assets, net of valuation allowance | |
| 7,776 | | |
| 7,643 | |
Prepaid expenses and other current
assets | |
| 1,546 | | |
| 1,983 | |
Total Current Assets | |
| 202,993 | | |
| 203,478 | |
| |
| | | |
| | |
Property and equipment, net | |
| 5,281 | | |
| 5,223 | |
Deferred financing costs, net | |
| 3,096 | | |
| 3,307 | |
Deferred tax asset, net of valuation allowance | |
| 7,369 | | |
| 7,796 | |
Intangible assets, net | |
| 45,408 | | |
| 42,067 | |
Goodwill | |
| 1,838 | | |
| 1,838 | |
| |
| | | |
| | |
Total Assets | |
$ | 265,985 | | |
$ | 263,709 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 2,288 | | |
$ | 2,654 | |
Accrued expenses and other | |
| 1,897 | | |
| 1,269 | |
Accrued compensation and related expenses | |
| 513 | | |
| 1,348 | |
Current income taxes payable | |
| 481 | | |
| 4,253 | |
Accrued Medicaid rebates | |
| 2,077 | | |
| 2,264 | |
Returned goods reserve | |
| 1,817 | | |
| 1,445 | |
Total Current Liabilities | |
| 9,073 | | |
| 13,233 | |
| |
| | | |
| | |
Long-term Liabilities | |
| | | |
| | |
Convertible notes, net of discount | |
| 112,172 | | |
| 110,691 | |
Total Liabilities | |
$ | 121,245 | | |
$ | 123,924 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 11) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Common Stock, $0.0001 par value, 33,333,334 shares
authorized; 11,389,317 shares issued and 11,386,817 shares outstanding at March 31, 2015; 11,387,860 shares issued and outstanding
at December 31, 2014 | |
| 1 | | |
| 1 | |
Class C Special Stock, $0.0001 par value, 781,281
shares authorized; 10,864 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| - | | |
| - | |
Preferred Stock, $0.0001 par value, 1,666,667 shares
authorized; 0 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| - | | |
| - | |
Treasury stock, 2,500 shares of common stock, at cost,
at March 31, 2015, 0 shares of common stock at December 31, 2014 | |
| - | | |
| - | |
Additional paid-in capital | |
| 160,095 | | |
| 159,509 | |
Accumulated deficit | |
| (15,356 | ) | |
| (19,725 | ) |
Total Stockholders' Equity | |
| 144,740 | | |
| 139,785 | |
| |
| | | |
| | |
Total Liabilities and Stockholders'
Equity | |
$ | 265,985 | | |
$ | 263,709 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of
Operations
(in thousands, except per share amounts)
(unaudited)
| |
Three months ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net Revenues | |
$ | 18,799 | | |
$ | 10,899 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
Cost of sales (excluding depreciation and amortization) | |
| 2,751 | | |
| 2,622 | |
Research and development | |
| 403 | | |
| 376 | |
Selling, general and administrative | |
| 4,751 | | |
| 3,703 | |
Depreciation and amortization | |
| 1,327 | | |
| 703 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 9,232 | | |
| 7,404 | |
| |
| | | |
| | |
Operating Income | |
| 9,567 | | |
| 3,495 | |
| |
| | | |
| | |
Other (Expense)/Income | |
| | | |
| | |
Interest expense, net | |
| (2,725 | ) | |
| - | |
Other income | |
| 68 | | |
| 29 | |
| |
| | | |
| | |
Income Before Provision for Income Taxes | |
| 6,910 | | |
| 3,524 | |
| |
| | | |
| | |
Provision for income taxes | |
| (2,541 | ) | |
| (165 | ) |
| |
| | | |
| | |
Net Income | |
$ | 4,369 | | |
$ | 3,359 | |
| |
| | | |
| | |
Basic and Diluted Earnings Per Share: | |
| | | |
| | |
Basic Earnings Per Share | |
$ | 0.38 | | |
$ | 0.33 | |
Diluted Earnings Per Share | |
$ | 0.38 | | |
$ | 0.33 | |
| |
| | | |
| | |
Basic Weighted-Average Shares Outstanding | |
| 11,326 | | |
| 9,991 | |
Diluted Weighted-Average Shares Outstanding | |
| 11,562 | | |
| 10,001 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of
Cash Flows
(in thousands)
(unaudited)
| |
Three months ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash Flows From Operating Activities | |
| | | |
| | |
Net income | |
$ | 4,369 | | |
$ | 3,359 | |
Adjustments to reconcile net loss to net cash and
cash equivalents provided by operating activities: | |
| | | |
| | |
Stock-based compensation | |
| 568 | | |
| 47 | |
Deferred taxes | |
| 294 | | |
| - | |
Depreciation and amortization | |
| 1,327 | | |
| 703 | |
Non-cash interest relating to convertible notes and loan cost
amortization | |
| 1,683 | | |
| - | |
Changes in operating assets and liabilities, net of those acquired in
business combination: | |
| | | |
| | |
Accounts receivable | |
| (74 | ) | |
| 1,606 | |
Inventories | |
| (3,219 | ) | |
| (1,572 | ) |
Prepaid expenses | |
| 437 | | |
| 14 | |
Accounts payable | |
| (471 | ) | |
| 1,298 | |
Accrued compensation and related expenses | |
| (835 | ) | |
| (307 | ) |
Current income taxes payable | |
| (3,772 | ) | |
| 35 | |
Accrued Medicaid rebates | |
| (187 | ) | |
| 17 | |
Accrued expenses, returned goods reserve, and other | |
| 1,000 | | |
| (21 | ) |
| |
| | | |
| | |
Net Cash and Cash Equivalents Provided by
Operating Activities | |
| 1,120 | | |
| 5,179 | |
| |
| | | |
| | |
Cash Flows From Investing Activities | |
| | | |
| | |
Acquisition of product rights and other related assets | |
| (4,500 | ) | |
| (12,517 | ) |
Acquisition of property and equipment | |
| (112 | ) | |
| (118 | ) |
| |
| | | |
| | |
Net Cash and Cash Equivalents Used in Investing Activities | |
| (4,612 | ) | |
| (12,635 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Net proceeds from equity offering | |
| - | | |
| 46,694 | |
Proceeds from stock option exercises | |
| 9 | | |
| 743 | |
Proceeds from warrant exercise | |
| - | | |
| 180 | |
Excess tax benefit from share-based
compensation awards | |
| 9 | | |
| 107 | |
| |
| | | |
| | |
Net Cash and Cash Equivalents Provided by Financing
Activities | |
| 18 | | |
| 47,724 | |
| |
| | | |
| | |
Change in Cash and Cash Equivalents | |
| (3,474 | ) | |
| 40,268 | |
| |
| | | |
| | |
Cash and cash equivalents, beginning
of period | |
| 169,037 | | |
| 11,105 | |
| |
| | | |
| | |
Cash and cash equivalents, end
of period | |
$ | 165,563 | | |
$ | 51,373 | |
| |
| | | |
| | |
Supplemental disclosure for cash
flow information: | |
| | | |
| | |
Cash paid for income taxes | |
$ | 6,029 | | |
$ | 60 | |
Supplemental non-cash investing
and financing activities: | |
| | | |
| | |
Property and equipment purchased
on credit | |
$ | 105 | | |
$ | - | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 1. | BUSINESS,
PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS |
Overview
ANI Pharmaceuticals, Inc. and subsidiary, ANIP Acquisition
Company (together, “ANI,” the “Company,” “we,” “us,” or “our”) is
an integrated specialty pharmaceutical company developing, manufacturing, and marketing branded and generic prescription pharmaceuticals.
Our targeted areas of product development currently include narcotics, oncolytics (anti-cancers), hormones and steroids, and complex
formulations involving extended release and combination products. We have two pharmaceutical manufacturing facilities located
in Baudette, Minnesota that are capable of producing oral solid dose products, as well as liquids and topicals, narcotics, and
potent products that must be manufactured in a fully-contained environment. Our strategy is to use our assets to develop, acquire,
manufacture, and market branded and generic specialty prescription pharmaceuticals. By executing this strategy, we believe we
will be able to continue to grow the business, expand and diversify our product portfolio, and create long-term value for our
investors.
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”). 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 and cash flows. The condensed consolidated balance sheet at December 31, 2014, has been derived from audited financial
statements of that date. The 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 United
States Securities and Exchange Commission. 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, 2014. Certain prior period information has been reclassified to conform to the current period presentation.
Principles of Consolidation
The unaudited interim condensed consolidated financial
statements include the accounts of ANI Pharmaceuticals, Inc. and its wholly owned subsidiary, ANIP Acquisition Company. All significant
inter-company accounts and transactions are eliminated in consolidation.
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 accompanying unaudited condensed consolidated financial statements, estimates are used for,
but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, rebates, returns and
other allowances, allowance for inventory obsolescence, allowances for contingencies and litigation, fair value of long-lived
assets, income tax provision, deferred taxes and valuation allowance, and the depreciable and amortizable lives of long-lived
assets. Actual results could differ from those estimates.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 1. | BUSINESS,
PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS – continued |
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance for revenue
recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific
guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance
obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard
will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with
customers. The standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted.
We are currently evaluating the impact, if any, that this new accounting pronouncement will have on our financial statements.
In April 2015, the FASB issued guidance to simplify
the balance sheet disclosure for debt issuance costs. Under the guidance, debt issuance costs related to a recognized debt liability
will be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, in the same manner
as debt discounts, rather than as an asset. The standard is effective for reporting periods beginning after December 15, 2015
and early adoption is permitted. We are currently evaluating the impact that this new accounting pronouncement will have on our
financial statements.
We have evaluated all other issued and unadopted
Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our results of operations,
financial position, or cash flows.
| 2. | REVENUE
RECOGNITION AND RELATED ALLOWANCES |
Revenue Recognition
Revenue is recognized for product sales and contract
manufacturing product sales upon passing of risk and title to the customer, when estimates of the selling price and discounts,
Medicaid rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably
determinable, collection is reasonably assured, and we have no further performance obligations. Contract manufacturing arrangements
are typically less than two weeks in duration, and therefore the revenue is recognized upon completion of the aforementioned factors
rather than using a proportional performance method of revenue recognition. The estimates for discounts, Medicaid rebates, promotional
adjustments, price adjustments, returns, chargebacks, and other potential adjustments reduce gross revenues to net revenues in
the accompanying unaudited interim condensed consolidated statements of operations, and are presented as current liabilities or
reductions in accounts receivable in the accompanying unaudited interim condensed consolidated balance sheets (see “Accruals
for Chargebacks, Rebates, Returns, and Other Allowances,” below). Historically, we have not entered into revenue arrangements
with multiple elements.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 2. | REVENUE
RECOGNITION AND RELATED ALLOWANCES - continued |
Occasionally, we engage in contract services, which
include product development services, laboratory services, and royalties on net sales of certain contract manufactured products.
For these services, revenue is recognized according to the terms of the agreement with the customer, which sometimes include substantive,
measurable risk-based milestones, and when we have a contractual right to receive such payment, the contract price is fixed or
determinable, the collection of the resulting receivable is reasonably assured, and we have no further performance obligations
under the agreement.
Accruals for Chargebacks, Rebates,
Returns and Other Allowances
Our generic and branded product revenues are typically
subject to agreements with customers allowing chargebacks, Medicaid rebates, product returns, administrative fees, and other rebates
and prompt payment discounts. We accrue for these items at the time of sale and continually monitor and re-evaluate the accruals
as additional information becomes available. We adjust the accruals at the end of each reporting period, to reflect any such updates
to the relevant facts and circumstances. Accruals are relieved upon receipt of payment from the customer or upon issuance of credit
to the customer.
The following table summarizes activity in the balance
sheet for accruals and allowances for the three-month periods ended March 31, 2015 and 2014, respectively:
(in thousands) | |
Accruals for Chargebacks,
Rebates, Returns and Other Allowances | |
| |
| | |
| | |
| | |
Administrative | | |
Prompt | |
| |
| | |
Medicaid | | |
| | |
Fees and Other | | |
Payment | |
| |
Chargebacks | | |
Rebates | | |
Returns | | |
Rebates | | |
Discounts | |
Balance at December 31, 2013 | |
$ | 4,076 | | |
$ | 253 | | |
$ | 736 | | |
$ | 735 | | |
$ | 332 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accruals/Adjustments | |
| 7,090 | | |
| 158 | | |
| 258 | | |
| 970 | | |
| 347 | |
Credits Taken Against Reserve | |
| (7,357 | ) | |
| (141 | ) | |
| (145 | ) | |
| (853 | ) | |
| (370 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2014 | |
$ | 3,809 | | |
$ | 270 | | |
$ | 849 | | |
$ | 852 | | |
$ | 309 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2014 | |
$ | 6,865 | | |
$ | 2,264 | | |
$ | 1,445 | | |
$ | 1,487 | | |
$ | 471 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accruals/Adjustments | |
| 10,260 | | |
| 953 | | |
| 566 | | |
| 1,472 | | |
| 609 | |
Credits Taken Against Reserve | |
| (10,526 | ) | |
| (1,140 | ) | |
| (194 | ) | |
| (1,825 | ) | |
| (602 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2015 | |
$ | 6,599 | | |
$ | 2,077 | | |
$ | 1,817 | | |
$ | 1,134 | | |
$ | 478 | |
Credit Concentration
Our customers are primarily wholesale distributors,
chain drug stores, group purchasing organizations, and pharmaceutical companies.
During the three month period ended March 31, 2015,
three customers represented 28%, 24%, and 19% of net revenues. As of March 31, 2015, net accounts receivable from these customers
totaled $14.2 million. During the three month period ended March 31, 2014, three customers represented 23%, 18%, and 15% of net
revenues.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
Convertible Senior Notes
In December 2014, we issued $143.8 million
of our Convertible Senior Note due 2019 (the “Notes”) in a registered public offering. After deducting the
underwriting discounts and commissions and other expenses (including the net cost of the bond hedge and warrant, discussed
below), the net proceeds from the offering were approximately $122.6 million. The Notes pay 3.0% interest semi-annually in
arrears on June 1 and December 1 of each year, starting on June 1, 2015 and are due December 1, 2019. The Notes are
convertible into 2,068,793 shares of common stock, based on an initial conversion price of $69.48 per share.
The Notes are convertible at the option of the holder
(i) during any calendar quarter beginning after March 31, 2015, if the last reported sale price of the common stock for at least
20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of
the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading
day, (ii) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal
amount of the Notes for each trading day of such period was less than 98% of the product of the last reported sale price of our
common stock and the conversion rate on each such trading day; and (iii) on or after June 1, 2019 until the second scheduled trading
day immediately preceding the maturity date.
Upon conversion by the holders, we may elect to
settle such conversion in shares of our common stock, cash, or a combination thereof. As a result of our cash conversion option,
we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to Additional Paid
in Capital (“APIC”)) of $33.6 million. The value of the embedded conversion option was determined based on the estimated
fair value of the debt without the conversion feature, which was determined using market comparables to estimate the fair value
of similar non-convertible debt (see Note 12). The debt discount is being amortized as additional non-cash interest expense using
the effective interest method over the term of the Notes.
Offering costs of $5.5 million have been allocated
to the debt and equity components in proportion to the allocation of proceeds to the components, as deferred financing costs and
equity issuance costs, respectively. The deferred financing costs of $4.2 million are being amortized as additional non-cash interest
expense using the straight-line method over the term of the debt, since this method was not significantly different from the effective
interest method. The $1.3 million portion allocated to equity issuance costs was charged to APIC.
A portion of the offering proceeds was used to simultaneously
enter into “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an affiliate
of one of the offering underwriters (collectively, the “Call Option Overlay”). We entered into the Call Option Overlay
to synthetically raise the initial conversion price of the Notes to $96.21 per share and reduce the potential common stock dilution
that may arise from the conversion of the Notes. The exercise price of the bond hedge is $69.48 per share, with an underlying
2,068,792 common shares; the exercise price of the warrant is $96.21 per share of our common stock, also with an underlying 2,068,792
common shares. Because the bond hedge and warrant are both indexed to our common stock and otherwise would be classified as equity,
we recorded both elements as equity, resulting in a net reduction to APIC of $15.6 million.
The carrying value of the Notes
is as follows as of March 31:
(in thousands) | |
2015 | |
Principal amount | |
$ | 143,750 | |
Unamortized debt discount | |
| (31,578 | ) |
Net carrying value | |
$ | 112,172 | |
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 3. | INDEBTEDNESS - continued |
The following table sets forth the components of
total interest expense related to the Notes recognized in the accompanying consolidated statements of operations for the three
months ended March 31:
(in thousands) | |
2015 | |
Contractual coupon | |
$ | 1,078 | |
Amortization of debt discount | |
| 1,481 | |
Amortization of finance fees | |
| 211 | |
Capitalized interest | |
| (9 | ) |
| |
$ | 2,761 | |
The effective interest rate on the Notes is 7.7%,
on an annualized basis.
Basic earnings per share is computed by dividing
net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.
Our unvested restricted shares contain non-forfeitable
rights to dividends, and therefore are considered to be participating securities; the calculation of basic and diluted earnings
per share excludes from the numerator net income attributable to the unvested restricted shares, and excludes the impact of those
shares from the denominator.
For purposes of determining diluted earnings per
share, we have elected a policy to assume that the principal portion of the Notes (see Note 3) is settled in cash. As such, the
principal portion of the Notes has no effect on either the numerator or denominator when determining diluted earnings per share.
Any conversion gain is assumed to be settled in shares and is incorporated in diluted earnings per share using the treasury method.
The warrants issued in conjunction with the issuance of the Notes (see Note 3) are considered to be dilutive when they are in-the-money
relative to our average stock price during the period; the bond hedge purchased in conjunction with the issuance of the Notes
is always considered to be anti-dilutive.
For periods of net income, and when the effects
are not anti-dilutive, we calculate diluted earnings per share by dividing net income available to common shareholders by the
weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of
common stock options, unvested restricted stock awards, stock purchase warrants, and any conversion gain on our Notes (see Note
3), using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per
share.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 4. | EARNINGS PER SHARE - continued |
Earnings per share for the three months ended March
31, 2015 and 2014 are calculated for basic and diluted earnings per share as follows:
| |
Basic | | |
Diluted | |
(in thousands)
| |
Three months ended
March 31, | | |
Three months ended
March 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Net income | |
$ | 4,369 | | |
$ | 3,359 | | |
$ | 4,369 | | |
$ | 3,359 | |
Net income allocated to warrants | |
| - | | |
| (19 | ) | |
| - | | |
| (19 | ) |
Net income allocated to restricted
stock | |
| (23 | ) | |
| (15 | ) | |
| (23 | ) | |
| (15 | ) |
Net income from continuing
operations allocated to common shares | |
$ | 4,346 | | |
$ | 3,325 | | |
$ | 4,346 | | |
$ | 3,325 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Basic Weighted-Average Shares Outstanding | |
| 11,326 | | |
| 9,991 | | |
| 11,326 | | |
| 9,991 | |
Dilutive effect of stock options | |
| | | |
| | | |
| 236 | | |
| 10 | |
Diluted Weighted-Average Shares Outstanding | |
| | | |
| | | |
| 11,562 | | |
| 10,001 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings Per Share | |
$ | 0.38 | | |
$ | 0.33 | | |
$ | 0.38 | | |
$ | 0.33 | |
The number of anti-dilutive shares, which have
been excluded from the computation of diluted earnings per share, including the shares underlying the Notes, was 4.6 million
and 0.7 million for the three months ended March 31, 2015 and 2014. Anti-dilutive shares consist of out-of-the-money Class C
Special stock, out-of-the-money common stock options, common stock options that are anti-dilutive when calculating the impact
of the potential dilutive common shares using the treasury stock method, and out-of-the-money warrants exercisable for common
stock.
As of March 31, 2015, we had 0.5 million options
outstanding to purchase common stock, 60 thousand unvested restricted stock awards, and 2.5 million warrants to purchase common
stock.
Inventories consist of the following as of:
(in thousands) | |
March 31, 2015 | | |
December 31, 2014 | |
Raw materials | |
$ | 7,974 | | |
$ | 5,056 | |
Packaging materials | |
| 783 | | |
| 794 | |
Work-in-progress | |
| 318 | | |
| 411 | |
Finished goods | |
| 1,984 | | |
| 1,368 | |
| |
| 11,059 | | |
| 7,629 | |
Reserve for excess/obsolete inventories | |
| (322 | ) | |
| (111 | ) |
Inventories, net | |
$ | 10,737 | | |
$ | 7,518 | |
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 5. | INVENTORIES
- continued |
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 costs 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 ongoing product manufacturing. During
the three months ended March 31, 2015, we purchased approximately 62% of our inventory from four suppliers. As of March 31, 2015,
amounts payable to these suppliers was $0.2 million. During the three months ended March 31, 2014, we purchased approximately
49% of our inventory from two suppliers.
| 6. | PROPERTY,
PLANT, AND EQUIPMENT |
Property, plant, and equipment consist of the following
as of:
(in thousands) | |
March 31, 2015 | | |
December 31, 2014 | |
Land | |
$ | 87 | | |
$ | 87 | |
Buildings | |
| 3,682 | | |
| 3,682 | |
Machinery, furniture and equipment | |
| 5,071 | | |
| 4,822 | |
Construction in progress | |
| 403 | | |
| 426 | |
| |
| 9,243 | | |
| 9,017 | |
Less: accumulated depreciation | |
| (3,962 | ) | |
| (3,794 | ) |
Property, Plant and Equipment, net | |
$ | 5,281 | | |
$ | 5,223 | |
Depreciation expense for the three month periods
ended March 31, 2015 and 2014 totaled $0.2 million and $0.1 million, respectively. During the three month period ended March 31,
2015, there was $9 thousand of interest capitalized into construction in progress. In the three month period ended March 31, 2014,
there was no interest capitalized into construction in progress.
| 7. | GOODWILL
AND INTANGIBLE ASSETS |
Goodwill
As a result of our 2013 merger with BioSante Pharmaceuticals,
Inc. (BioSante), we recorded goodwill of $1.8 million in our one reporting unit. We assess the recoverability of the carrying
value of goodwill as of October 31 of each year, and whenever events occur or circumstances change that would, more likely than
not, reduce the fair value of our reporting unit below its carrying value. There have been no events or changes in circumstances
that would have reduced the fair value of our reporting unit below its carrying value from the most recent assessment on October
31, 2014, through March 31, 2015. No impairment losses were recognized during the three months ended March 31, 2015 or 2014.
Acquisition of Abbreviated New Drug Application
In March 2015 we purchased from Teva Pharmaceuticals
(“Teva”) the Abbreviated New Drug Application (“ANDA”) for a generic product, Flecainide Acetate tablets,
for $4.5 million in cash and a percentage of future gross profits from product sales. We accounted for this transaction as an
asset purchase. The ANDA is being amortized in full over its useful life of 10 years.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 7. | GOODWILL
AND INTANGIBLE ASSETS – continued |
Definite-Lived Intangible Assets
The components of our definite-lived intangible
assets are as follows:
(in thousands) | |
March 31, 2015 | | |
December 31, 2014 | | |
Weighted Average |
| |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Amortization Period |
Acquired ANDA intangible assets | |
$ | 17,077 | | |
$ | (1,662 | ) | |
$ | 12,577 | | |
$ | (1,312 | ) | |
10 years |
Product rights | |
| 22,522 | | |
| (1,694 | ) | |
| 22,522 | | |
| (1,133 | ) | |
10 years |
Teva license intangible asset | |
| 10,900 | | |
| (1,735 | ) | |
| 10,900 | | |
| (1,487 | ) | |
11 years |
| |
$ | 50,499 | | |
$ | (5,091 | ) | |
$ | 45,999 | | |
$ | (3,932 | ) | |
|
Our acquired ANDA intangible assets consist of the
exclusive rights, including all of the applicable technical data and other relevant information, to produce certain pharmaceutical
products that we acquired from various companies, including the group of ANDAs acquired from Teva in the first quarter of 2014
and the additional ANDA acquired in 2015. The product rights assets consist of the exclusive rights, including all of the applicable
technical data and other relevant information, to produce certain branded pharmaceutical products that we acquired from various
companies, including the Lithobid and Vancocin products acquired in the third quarter of 2014. The Teva license was acquired as
part of our 2013 merger with BioSante. Definite-lived intangible assets are stated at the lower of cost or fair value, net of
amortization using the straight line method over the expected useful lives of the intangible assets. Amortization expense was
$1.2 million and $0.6 million for the three months ended March 31, 2015 and 2014, respectively.
We test for impairment of definite-lived intangible
assets when events or circumstances indicate that the carrying value of the assets may not be recoverable. No such triggering
events were identified during the three months ended March 31, 2015 and 2014 and therefore no impairment loss was recognized in
the three months ended March 31, 2015 or 2014.
Expected future amortization expense is as follows:
(in thousands) | |
| |
2015 (remainder of the year) | |
$ | 3,701 | |
2016 | |
| 4,935 | |
2017 | |
| 4,935 | |
2018 | |
| 4,935 | |
2019 | |
| 4,935 | |
2020 and thereafter | |
| 21,967 | |
Total | |
$ | 45,408 | |
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 8. | STOCK-BASED
COMPENSATION |
All stock options and restricted stock are granted
under the ANI Pharmaceuticals, Inc. Fourth Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”). As of
March 31, 2015, 0.7 million shares of our common stock remained available for issuance under the 2008 Plan.
Total expense related to stock options for the three
months ended March 31, 2015 and 2014 was $0.5 million and $4 thousand, respectively. Total expense related to restricted stock
grants for the three months ended March 31, 2015 and 2014 was $0.1 million and $42 thousand, respectively.
Options to purchase one thousand shares of common
stock were exercised, 28 thousand options were forfeited, and no options expired during the three months ended March 31, 2015.
Options to purchase 30 thousand shares of common stock were exercised and no options were forfeited or expired during the three
month period ended March 31, 2014. No restricted stock vested during the three months ended March 31, 2015 or 2014. During the
three months ended March 31, 2015, three thousand shares of restricted stock were forfeited. No restricted stock was forfeited
during the three months ended March 31, 2014.
On March 10, 2014, we completed a follow-on public
offering of 1.6 million shares of our common stock at a public offering price of $31.00 per share (the “March 2014 Offering”).
We received gross proceeds of $50.0 million, or net proceeds of $46.7 million after deducting costs of $3.3 million, including
the underwriters’ fees and commissions, as well as expenses directly related to the March 2014 Offering .
The number of shares sold in the March 2014 Offering includes the exercise in full by the underwriters of their option
to purchase an additional 0.2 million shares of common stock.
No warrants to purchase shares of common stock expired
unexercised during the three months ended March 31, 2015 or 2014, respectively. No warrants to purchase shares of common stock
were exercised in the three months ended March 31, 2015. In January 2014, warrants to purchase an aggregate of 20 thousand shares
of common stock were exercised at $9.00 per share.
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 both March 31, 2015 and December 31, 2014, we had provided a valuation allowance against certain state net
operating loss carryforwards of approximately $0.1 million. For interim periods, we recognize an income tax provision/(benefit)
based on our estimated annual effective tax rate expected for the entire year. We calculate income tax benefits related to stock-based
compensation arrangements using the with and without method.
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,
as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. 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 financial statements. We are
subject to taxation in various jurisdictions and all of our income tax returns remain subject to examination by tax authorities
due to the availability of NOL carryforwards.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 10. | INCOME
TAXES - continued |
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 March 31, 2015
and December 31, 2014.
The effective tax rate for the three months ended
March 31, 2015 was 36.8% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated
for the year ending December 31, 2015. The effective tax rate for the period was primarily affected by the impact of state taxes
and permanent differences. We have elected to exclude the impacts from significant pre-tax non-recognized subsequent events from
our estimated annual effective rate. Our estimated annual effective rate is primarily driven by our forecasted pre-tax income,
estimated temporary and permanent differences, and the use of our existing NOLs. Changes in the estimated annual effective rate
during the year are primarily driven by periodic changes to our forecasted pre-tax income. The utilization of our NOL carryforwards
will be limited in future years as prescribed by Section 382 of the U.S. Internal Revenue Code. For the comparable three months
ended March 31, 2014, the effective tax rate was 4.6% of net income reported in the period, calculated based on the estimated
annual effective rate anticipated for the year ending December 31, 2014. The effective tax rate for the period was primarily impacted
by the use of the NOL carryforwards and changes in our valuation allowance, most of which was released in the fourth quarter of
2014.
| 11. | COMMITMENTS
AND CONTINGENCIES |
Operating Leases
We lease equipment under operating leases that expire
in May 2017. We also lease office space under operating leases that expire beginning in February 2016 through September 2018.
Future minimum lease payments due under these leases total $0.2 million as of March 31, 2015.
Rent expense for the three months ended March 31,
2015 and 2014 totaled $18 thousand and $17 thousand, respectively.
Government Regulation
Our products and facilities are subject to regulation
by a number of federal and state governmental agencies. The Food and Drug Administration (“FDA”), in particular, maintains
oversight of the formulation, manufacture, distribution, packaging and labeling of all of our products. The Drug Enforcement Administration
(“DEA”) maintains oversight over our products that are controlled substances.
Unapproved Products
Two of our products, Esterified Estrogen with Methyltestosterone
tablets (“EEMT”) and Opium Tincture, are marketed without approved New Drug Applications (“NDAs”) or ANDAs.
During the three months ended March 31, 2015 and 2014, net revenues for these products totaled $10.3 million and $6.7 million,
respectively.
The FDA's policy with respect to the continued marketing
of unapproved products is stated in the FDA's September 2011 Compliance Policy Guide Sec. 440.100 titled “Marketed New Drugs
without Approved NDAs or ANDAs.” Under this policy, the FDA has stated that it will follow a risk-based approach with regard
to enforcement against such unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis,
but gives higher priority to enforcement action against products in certain categories, such as those marketed as unapproved drugs
with potential safety risks or that lack evidence of effectiveness. We believe that, so long as we comply with applicable manufacturing
standards, the FDA will not take action against us under the current enforcement policy. There can be no assurance, however, that
the FDA will continue this policy or not take a contrary position with any individual product or group of products. If the FDA
were to take a contrary position, we may be required to seek FDA approval for these products or withdraw such products from the
market. If we decide to withdraw the products from the market, our net revenues for generic pharmaceutical products would decline
materially, and if we decide to seek FDA approval, we would face increased expenses and might need to suspend sales of the products
until such approval was obtained, and there are no assurances that we would receive such approval.
ANI PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 11. | COMMITMENTS
AND CONTINGENCIES – continued |
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 these unapproved products for the three months ended March 31, 2015 and 2014 were $0.3 million
and $0.4 million, respectively.
We receive royalties on the net sales of a group
of contract-manufactured products, which are marketed by the contract 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 royalties on the net sales of these unapproved products for each of the three months ended March 31, 2015 and
2014 were $0.1 million.
Louisiana Medicaid Lawsuit
On September 11, 2013, the Attorney General
of the State of Louisiana filed a lawsuit in Louisiana state court against numerous pharmaceutical companies, including us, under
various state laws, alleging that each defendant caused the state’s Medicaid agency to provide reimbursement for drug products
that allegedly were not approved by the FDA and therefore allegedly not reimbursable under the federal Medicaid program. The lawsuit
relates to three cough and cold prescription products manufactured and sold by our former Gulfport, Mississippi operation, which
was sold in September 2010. Through its lawsuit, the state seeks unspecified damages, statutory fines, penalties, attorneys’
fees and costs. On October 15, 2013, the defendants removed the lawsuit to the U.S. District Court. On November 14,
2013, the state filed a motion to remand the lawsuit to the Louisiana state court. On September 30, 2014, the U.S. District Court
remanded the case from the federal to the state court. While we cannot predict the outcome of the lawsuit at this time,
we could be subject to material damages, penalties and fines. We intend to vigorously defend against all claims in the lawsuit.
Other Commitments and Contingencies
All manufacturers of the drug Reglan and its generic
equivalent metoclopramide, including ANI, are facing allegations from plaintiffs in various states, including California, New
Jersey and Pennsylvania, 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. In August 2012, we were dismissed with prejudice from all New Jersey
cases. We consider our exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide that
we manufactured prior to the implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008;
(2) our market share for the oral solution was a very small portion of the overall metoclopramide market; and (3) once we received
a request for change of labeling from the FDA, we submitted our proposed changes within 30 days, and such changes were subsequently
approved by the FDA.
At the present time, we are unable to assess the
likely outcome of the cases in the remaining states. Our insurance company has assumed the defense of this matter. However, our
current product liability insurance policy contains absolute exclusions for claims related to Reglan and metoclopramide. We cannot
provide assurances that the outcome of these matters will not have an adverse effect on our business, financial condition, and
operating results. Furthermore, like all pharmaceutical manufacturers, we may be exposed to other product liability claims in
the future, which could further 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.
ANI PHARMACEUTICALS, INC. and
subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 12. | 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, borrowings under line of credit, and other current liabilities) approximate their
carrying values because of their short-term nature. While our Notes are recorded on our balance sheets at their net carrying
value of $112.2 million, as of March 31, 2015, the Notes are being traded on the bond market and their full fair value is $165.9
million based on their closing price on March 31, 2015, a Level 1 input.
Financial Assets and Liabilities Measured at Fair
Value on a Recurring Basis
Our contingent value rights
(“CVRs”), which were granted coincident with the merger with BioSatite, 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 15%. We determined that the
fair value of the CVRs, and the changes in such fair value, was immaterial as of March 31, 2015 and December 31, 2014, and
for the three months ended March 31, 2015 and 2014.
The following table presents our financial assets and
liabilities accounted for at fair value on a recurring basis as of March 31, 2015 and December 31, 2014, by level within the fair
value hierarchy:
(in thousands) | |
| | |
| | | |
| | | |
| | |
Description | |
Fair Value at March 31, 2015 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
CVRs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Description | |
Fair Value at December 31, 2014 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
CVRs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
ANI PHARMACEUTICALS, INC. and
subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
| 12. | FAIR
VALUE DISCLOSURES – continued |
Financial Liabilities Measured at Fair Value on a
Non-Recurring Basis
In December 2014, we issued $143.8M
of Notes (see Note 3). Because we have the option to cash settle the potential conversion of the Notes in cash, we separated
the embedded conversion option feature from the debt feature and account for each component separately, based on the fair value
of the debt component assuming no conversion option. The calculation of the fair value of the debt component required the use of
Level 3 inputs, and was determined by calculating the fair value of similar non-convertible debt, using a theoretical interest
rate of 9%. The theoretical interest rate was determined from market comparables to estimate what the interest rate would have
been if there was no conversion option embedded in the Notes. The fair value of the embedded conversion option was calculated using
the residual value method and is classified as equity.
A portion of the offering proceeds was used to simultaneously
enter into “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an affiliate
of one of the offering underwriters (see Note 3). The exercise price of the bond hedge is $69.48 per share, with an underlying
2,068,792 common shares; the exercise price of the warrant is $96.21 per share of our common stock, also with an underlying 2,068,792
common shares. We calculated the fair value of the bond hedge based on the price we paid to purchase the call. We calculated the
fair value of the warrant based on the price at which the affiliate purchased the warrants from us. Because the bond hedge and
warrant are both indexed to our common stock and otherwise would be classified as equity, we recorded both elements as equity,
resulting in a net reduction to APIC of $15.6 million.
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, 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 months
ended March 31, 2015 and 2014.
In March 2015, we purchased from Teva the ANDA for Flecainide
Acetate tablets for $4.5 million in cash and a percentage of future gross profits from product sales. The value of the ANDA was
based on the purchase price of $4.5 million.
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 Form 10-Q quarterly report. 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 annual report on Form
10-K for the year ended December 31, 2014.
EXECUTIVE OVERVIEW
ANI Pharmaceuticals, Inc. and its wholly-owned, consolidated subsidiary,
ANIP Acquisition Company (together, “ANI,” the “Company,” “we,” “us,” or “our”)
is an integrated specialty pharmaceutical company developing, manufacturing, and marketing branded and generic prescription pharmaceuticals.
Our targeted areas of product development currently include narcotics, oncolytics (anti-cancers), hormones and steroids, and complex
formulations involving extended release and combination products. We have two pharmaceutical manufacturing facilities located in
Baudette, Minnesota that are capable of producing oral solid dose products, as well as liquids and topicals, narcotics, and potent
products that must be manufactured in a fully-contained environment.
Our strategy is to use our assets to develop, acquire, manufacture,
and market branded and generic specialty prescription pharmaceuticals. By executing this strategy, we believe we will be able to
continue to grow the business, expand and diversify our product portfolio, and create long-term value for our investors.
As of March 31, 2015, our products include both branded and generic
pharmaceuticals, specifically:
Generic Products |
|
Branded Products |
Esterified Estrogen with Methyltestosterone |
|
Cortenema |
Fluvoxamine Maleate |
|
Reglan |
Hydrocortisone Enema |
|
Lithobid |
Methazolamide |
|
Vancocin |
Metoclopramide Syrup |
|
|
Opium Tincture |
|
|
Etodolac |
|
|
Propafenone |
|
|
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 product 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, which includes expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products. |
|
· |
Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to maximize the capacity and utilization of our facilities, to ensure quality control in our products, and to maximize profit potential. |
|
· |
Competition. When determining whether to develop or acquire an individual product, we research the existing and expected market share of generic competitors. We seek to develop products for which we can obtain a large market share, and may decline to develop a product if we anticipate that many generic competitors will be entering that product’s market. Our highly specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies would be able to compete. |
GENERAL
The following table summarizes our results of operations for the
periods indicated:
(in thousands) | |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Net revenues | |
$ | 18,799 | | |
$ | 10,899 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Cost of sales (exclusive of depreciation and amortization) | |
| 2,751 | | |
| 2,622 | |
Research and development | |
| 403 | | |
| 376 | |
Selling, general and administrative | |
| 4,751 | | |
| 3,703 | |
Depreciation and amortization | |
| 1,327 | | |
| 703 | |
| |
| | | |
| | |
Operating income | |
| 9,567 | | |
| 3,495 | |
Interest expense, net | |
| (2,725 | ) | |
| - | |
Other income | |
| 68 | | |
| 29 | |
Income before provision for income taxes | |
| 6,910 | | |
| 3,524 | |
Provision for income taxes | |
| (2,541 | ) | |
| (165 | ) |
Net income | |
$ | 4,369 | | |
$ | 3,359 | |
The following table sets forth, for all periods indicated, items
in our unaudited condensed consolidated statements of operations as a percentage of net revenues:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Net revenues | |
| 100.0 | % | |
| 100.0 | % |
Operating expenses | |
| | | |
| | |
Cost of sales (exclusive of depreciation and amortization) | |
| 14.6 | % | |
| 24.1 | % |
Research and development | |
| 2.1 | % | |
| 3.4 | % |
Selling, general and administrative | |
| 25.3 | % | |
| 34.0 | % |
Depreciation and amortization | |
| 7.1 | % | |
| 6.4 | % |
Operating income | |
| 50.9 | % | |
| 32.1 | % |
Interest expense, net | |
| (14.5 | )% | |
| - | % |
Other income | |
| 0.4 | % | |
| 0.2 | % |
Income before provision for income taxes | |
| 36.8 | % | |
| 32.3 | % |
Provision for income taxes | |
| (13.6 | )% | |
| (1.5 | )% |
Net income | |
| 23.2 | % | |
| 30.8 | % |
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2015
AND 2014
Net Revenues
(in thousands) | |
Three Months Ended March 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Change | | |
% Change | |
Generic pharmaceutical products | |
$ | 12,256 | | |
$ | 8,054 | | |
$ | 4,202 | | |
| 52.2 | % |
Branded pharmaceutical products | |
| 4,272 | | |
| 774 | | |
| 3,498 | | |
| 451.9 | % |
Contract manufacturing | |
| 1,205 | | |
| 1,619 | | |
| (414 | ) | |
| (25.6 | )% |
Contract services and other income | |
| 1,066 | | |
| 452 | | |
| 614 | | |
| 135.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Total net revenues | |
$ | 18,799 | | |
$ | 10,899 | | |
$ | 7,900 | | |
| 72.5 | % |
We derive substantially all of our revenues from sales of generic
and branded pharmaceutical products, contract manufacturing, and contract services, which include product development services,
laboratory services, and royalties on net sales of certain products.
Net revenues for the three months ended March 31, 2015 were $18.8 million
compared to $10.9 million for the same period in 2014, an increase of $7.9 million, or 72.5%, primarily as a result of the
following factors:
|
· |
|
Net revenues for generic pharmaceutical products
were $12.3 million during the three months ended March 31, 2015, an increase of 52.2% compared to $8.1 million for
the same period in 2014. The primary reason for the increase was increased Esterified Estrogen with Methyltestosterone tablets
(“EEMT”) revenues, due to increases in prices per bottle, as well as sales of our Methazolamide and Etodolac products,
which were launched in the fourth quarter of 2014 and the first quarter of 2015, respectively. We also experienced increased
sales for our HC Enema and Opium Tincture products. |
|
|
|
|
|
|
|
As described in Note 11, Commitments and Contingencies, in the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q quarterly report, we market EEMT and Opium Tincture without FDA-approved New Drug Applications (“NDAs”). The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec. 440.100 titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness. While we believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action against us under the current enforcement policy, we can offer no assurances that the FDA will continue this policy or not take a contrary position with any individual product or group of products. Our combined net revenues for these products for the three months ended March 31, 2015 and 2014 were $10.3 million and $6.7 million, respectively. |
|
|
|
|
|
· |
|
Net revenues for branded pharmaceutical products were $4.3 million during the three months ended March 31, 2015, an increase of 451.9% compared to $0.8 million for the same period in 2014. The primary reasons for the increase were sales from our Lithobid and Vancocin products, respectively, the product rights to which were acquired during the third quarter of 2014. |
|
|
|
|
|
· |
· |
Contract manufacturing revenues were $1.2 million during the three months ended March 31, 2015, a decrease of 25.6% compared to $1.6 million for the same period in 2014, due to timing of orders from contract manufacturing customers in the period. As described in Note 11, Commitments and Contingencies, in the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q quarterly report, we contract manufacture a group of products on behalf of a customer that are marketed by that customer without an FDA-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 March 31, 2015 and 2014 were $0.3 million and $0.4 million, respectively. |
|
· |
Contract services and other income were $1.1 million during the three months ended March 31, 2015, an increase of 135.8% from $0.5 million for the same period in 2014, due primarily to royalties received on sales of the authorized generic of Vancocin, the product rights to which were acquired in the third quarter of 2014. As described in Note 11, Commitments and Contingencies, in the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q quarterly report, we receive royalties on the net sales of a group of contract-manufactured products, which are marketed by the customer without an FDA-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 royalties on the net sales of these unapproved products were $0.1 million for each of the three month periods ended March 31, 2015 and 2014. |
Cost of Sales (Excluding Depreciation and Amortization)
(in thousands) | |
Three Months Ended March 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Change | | |
%
Change | |
Cost of sales (excl. depreciation and amortization) | |
$ | 2,751 | | |
$ | 2,622 | | |
$ | 129 | | |
| 4.9 | % |
Cost of sales consists of direct labor, including manufacturing
and packaging, active and inactive pharmaceutical ingredients, freight costs, and packaging components. 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 March 31, 2015, cost of sales increased
to $2.8 million from $2.6 million for the same period in 2014, an increase of $0.1 million or 4.9%, primarily as a result
of increased sales in the period. Cost of sales as a percentage of net revenues decreased to 14.6% during the three months
ended March 31, 2015, from 24.1% during same period in 2014, primarily as a result of price increases for EEMT and a favorable
shift in product mix toward higher margin products, including our two branded products, Lithobid and Vancocin, which we acquired
in the third quarter of 2014.
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. Changes in API suppliers
usually must be approved by the FDA, which can take 18 months or longer. As a result, we are dependent upon our current vendors
to reliably supply the API required for ongoing product manufacturing. In addition, certain of our API for our drug products, including
those that are marketed without approved NDAs or ANDAs, are sourced from international suppliers. From time to time, we have experienced
temporary disruptions in the supply of certain of such imported APIs due to FDA inspections. During the three months ended March
31, 2015, we purchased 62% of our inventory from four suppliers. As of March 31, 2015, amounts payable to these suppliers were
$0.2 million. In the three months ended March 31, 2014, we purchased 49% of our inventory from two suppliers.
Each year, we must submit a request to the Drug Enforcement Agency
(“DEA”) for a quota to purchase the amount of API needed to manufacture Opium Tincture. Without an approved quota from
the DEA, we would not be able to purchase API from our supplier. As a result, we are dependent upon the DEA to annually approve
a sufficient quota of API to support the continued manufacture of Opium Tincture.
Other Operating Expenses
(in thousands) | |
Three Months Ended March 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Change | | |
%
Change | |
Research and development | |
$ | 403 | | |
$ | 376 | | |
$ | 27 | | |
| 7.2 | % |
Selling, general and administrative | |
| 4,751 | | |
| 3,703 | | |
| 1,048 | | |
| 28.3 | % |
Depreciation and amortization | |
| 1,327 | | |
| 703 | | |
| 624 | | |
| 88.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Total other operating expenses | |
$ | 6,481 | | |
$ | 4,782 | | |
$ | 1,699 | | |
| 35.5 | % |
Other operating expenses consist of research and development costs,
selling, general and administrative expenses, and depreciation and amortization.
For the three months ended March 31, 2015, other operating expenses
increased to $6.5 million from $4.8 million for the same period in 2014, an increase of $1.7 million, or 35.5%, primarily
as a result of the following factors:
|
· |
Selling, general and administrative expenses increased from $3.7 million to $4.8 million, an increase of 28.3%, primarily due to increased stock-based compensation expense in 2015, as well as increases in personnel and related costs. |
|
· |
Depreciation and amortization increased from $0.7 million to $1.3 million, an increase of 88.8%, due to amortization of the product rights for Lithobid and Vancocin, which rights were purchased during the third quarter of 2014. |
|
· |
Research and development expenses increased by 7.2%, due to work on development projects, including the ANDAs purchased from Teva Pharmaceuticals (“Teva”) and new collaborations. |
Other (Expense)/Income
(in thousands) | |
Three Months Ended March 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Interest expense, net | |
$ | (2,725 | ) | |
$ | - | | |
$ | (2,725 | ) | |
| (100.0 | )% |
Other income | |
| 68 | | |
| 29 | | |
| 39 | | |
| 134.5 | % |
| |
| | | |
| | | |
| | | |
| | |
Total other (expense)/ income | |
$ | (2,657 | ) | |
$ | 29 | | |
$ | (2,686 | ) | |
| (9,262.1 | )% |
For the three months ended March 31, 2015, we recognized other expense
of $2.7 million versus other income of $29 thousand for the same period in 2014, a change of $2.7 million. This change resulted
primarily from $2.8 million of interest expense recognized on our convertible debt balance during the period.
Income Taxes
(in thousands) | |
Three Months Ended March 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Provision for income taxes | |
$ | (2,541 | ) | |
$ | (165 | ) | |
$ | (2,376 | ) | |
| 1,440.0 | % |
Our provision for income taxes consists of current and deferred
components, which include changes in our deferred tax assets (“DTAs”), our deferred tax liabilities (“DTLs”),
and our valuation allowance. In the fourth quarter of 2014, we reversed the majority of the valuation allowance we had recorded
against our net DTAs. The reversal was the result of our determination that it is more likely than not that we will realize the
benefits of our net DTAs as a result of our expectation of future profitability, among other factors. Prior to the reversal,
we had fully reserved for all our net DTAs.
For the three months ended March 31, 2015, we recognized income
tax expense of $2.5 million, versus income tax expense of $0.2 million for the same period in 2014, an increase of $2.3 million.
This change resulted primarily due to $2.5 million of current income tax provision for the first quarter of 2015. The effective
tax rate for the three months ended March 31, 2015 was 36.8% of pre-tax income reported in the period, calculated based on the
estimated annual effective rate anticipated for the year ending December 31, 2015. The effective tax rate for the period was primarily
affected by the impact of state taxes and permanent differences. Changes in the estimated annual effective rate during the year
are primarily driven by periodic changes to our forecasted pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The following table highlights selected liquidity and working capital
information from our balance sheets:
(in thousands) | |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Cash and cash equivalents | |
$ | 165,563 | | |
$ | 169,037 | |
Accounts receivable, net | |
| 17,371 | | |
| 17,297 | |
Inventories | |
| 10,737 | | |
| 7,518 | |
Deferred tax assets, net of valuation allowance | |
| 7,776 | | |
| 7,643 | |
Prepaid expenses and other current assets | |
| 1,546 | | |
| 1,983 | |
Total current assets | |
$ | 202,993 | | |
$ | 203,478 | |
| |
| | | |
| | |
Accounts payable | |
$ | 2,288 | | |
$ | 2,654 | |
Accrued expenses and other | |
| 1,897 | | |
| 1,269 | |
Accrued compensation and related expenses | |
| 513 | | |
| 1,348 | |
Current income taxes payable | |
| 481 | | |
| 4,253 | |
Accrued Medicaid rebates | |
| 2,077 | | |
| 2,264 | |
Returned goods reserve | |
| 1,817 | | |
| 1,445 | |
Total current liabilities | |
$ | 9,073 | | |
$ | 13,233 | |
At March 31, 2015, we had $165.6 million in unrestricted cash and
cash equivalents. At December 31, 2014, we had $169.0 million in unrestricted cash and cash equivalents. We generated $1.1 million
of cash from operations in the three months ended March 31, 2015. In addition, in the first quarter of 2015, we acquired an ANDA
from Teva for $4.5 million.
We are focused on expanding our business and product pipeline through
collaborations, and also through acquisitions of products and companies. We are continually evaluating potential asset acquisitions
and business combinations. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both.
We believe that our financial resources, consisting of current working
capital and anticipated future operating revenue, will be sufficient to enable us to meet our working capital requirements for
at least the next 12 months.
The following table summarizes the net cash and cash equivalents
provided by/(used in) operating activities, investing activities and financing activities for the periods indicated:
(in thousands) | |
Years ended December 31, | |
| |
2015 | | |
2014 | |
Operating Activities | |
$ | 1,120 | | |
$ | 5,179 | |
Investing Activities | |
$ | (4,612 | ) | |
$ | (12,635 | ) |
Financing Activities | |
$ | 18 | | |
$ | 47,724 | |
Net Cash Provided By Operations
Net cash
provided by operating activities was $1.1 million for the three months ended March 31, 2015, compared to $5.2 million during the
same period in 2014, a decrease of $4.1 million between the periods. This decrease was due to changes in net income and changes
in current assets and current liabilities. Net income from operations for the three months ended March 31, 2015 increased by $4.1
million from the same period in 2014, after adjusting for non-cash expenses. Changes in current assets and current liabilities
for the three months ended March 31, 2015 used $7.1 million of cash compared to $1.1 million provided in the same period in 2014,
a difference of approximately $8.2 million between the periods. Current income taxes payable decreased by $3.8 million in the three
months ended March 31, 2015, as compared with a slight increase in the prior year period. Inventory increased $3.2 million in the
three months ended March 31, 2015 as compared with an increase of $1.6 million in the prior year period. Accounts receivable increased
by $0.1 million in the three months ended March 31, 2015 as compared with a decrease of $1.6 million in the prior year period.
Accounts payable decreased by $0.5 million in the three months ended March 31, 2015 as compared with an increase of $1.3 million
in the prior year period. These increases to cash used were partially offset by an increase in Accrued expenses, returned
goods reserve, and other of $1.0 million in the three months ended March 31, 2015, as compared with a slight decrease in the prior
year period.
Net Cash Used In Investing Activities
Net cash used in investing activities for the three months ended
March 31, 2015 was $4.6 million, principally due to the $4.5 million asset acquisition of the ANDA for Flecainide Acetate tablets,
in addition to $0.1 million of capital expenditures during the period. Net cash used in investing activities was $12.6 million
during the same period in 2014, relating primarily to the $12.5 million asset acquisition from Teva of ANDAs related to 31 generic
products, in addition to capital expenditures during the period.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $18 thousand for the
three months ended March 31, 2015, resulting primarily from proceeds from stock option exercises and excess tax benefit from stock-based
compensation awards during the three months ended March 31, 2015. Net cash provided by financing activities was $47.7 million during
the same period in 2014, resulting primarily from $46.7 million of net proceeds received in our March 10, 2014 follow-on public
offering. We also received $0.7 million of cash from stock option exercises and $0.2 million from warrant exercises during the
three months ended March 31, 2014.
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 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 our unaudited condensed consolidated financial statements, estimates
are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, returns
and other allowances, allowance for inventory obsolescence, accruals for contingent liabilities and litigation, fair value of long-lived
assets, income tax provision, deferred taxes and valuation allowance, and the depreciable and amortizable lives of long-lived assets.
A summary of our significant accounting policies is included in
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, 2014. 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 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, 2014.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued guidance for revenue recognition for
contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. The
guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations,
3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result
in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers.
The standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. We are
currently evaluating the impact, if any, that this standard will have on our consolidated financial statements.
In April 2015, the FASB issued guidance to simplify the balance
sheet disclosure for debt issuance costs. Under the guidance, debt issuance costs related to a recognized debt liability will be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, in the same manner as debt
discounts, rather than as an asset. The standard is effective for reporting periods beginning after December 15, 2015 and early
adoption is permitted. We are currently evaluating the impact that this new accounting pronouncement will have on our financial
statements.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2015 and December 31, 2014, we did not have any
off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
As of March 31, 2015, our only debt obligation was related to our
Notes. In order to reduce the potential equity dilution that would result upon conversion of the Senior Convertible Notes
we issued in December 2014, we entered into note hedge transactions with a financial institution affiliated with one of the underwriters
of the Senior Convertible Note offering. The note hedge transactions are expected generally, but not guaranteed, to reduce the
potential dilution to our common stock and/or offset the cash payments we are required to make in excess of the principal amount
upon any conversion of Senior Convertible Notes, in the event that the market price per share of our common stock, as measured
under the terms of the Convertible Note Hedge Transactions, is greater than the conversion price of the Senior Convertible Notes,
which is initially approximately $69.48. In addition, in order to partially offset the cost of the note hedge transactions, we
issued warrants to the hedge counterparty to purchase approximately 2.1 million shares of our common stock at a strike price of
$96.21. The warrants would separately have a dilutive effect to the extent that the market value per share of our common stock
exceeds the strike price of the warrants. In addition, non-performance by the counterparties under the hedge transactions would
potentially expose us to dilution of our common stock to the extent our stock price exceeds the conversion price.
Interest on the Notes accrues at a fixed rate of 3.0% on the outstanding
principal amount of the Notes and is paid semi-annually every December 1st and June 1st until the Notes mature on December 1, 2019. Since
the interest rate is fixed, we have no interest-rate market risk related to the Notes. However, if our stock price increases, the
fair value of our Notes, and their likelihood of being converted, will increase accordingly.
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 three months
ended March 31, 2015 by approximately $4 thousand.
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 March 31, 2015. 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 March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to Note 11, Commitments and Contingencies
, in the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q quarterly report, 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 in our most recent annual report on Form 10-K for the fiscal year ended December
31, 2014 under the heading “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. Other than as described below, there has
been no material change to those risk factors.
Item 2. Unregistered Sales of Equity
and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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.
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.
|
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ANI Pharmaceuticals, Inc. (Registrant) |
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|
Date: |
May 5, 2015 |
|
By: |
/s/ Arthur S. Przybyl |
|
|
|
|
Arthur S. Przybyl |
|
|
|
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President and |
|
|
|
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: |
May 5, 2015 |
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By: |
/s/ Charlotte C. Arnold |
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Charlotte C. Arnold |
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Vice President, Finance and |
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Chief Financial Officer |
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(Principal Financial Officer) |
INDEX TO EXHIBITS
Exhibit No. |
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Description |
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31.1 |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
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Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 |
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101.INS |
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XBRL Instance Document |
101.SCH |
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XBRL Taxonomy Extension Schema Document |
101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Arthur S. Przybyl, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of ANI Pharmaceuticals, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 5, 2015 |
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/s/ Arthur S. Przybyl |
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Arthur S. Przybyl |
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President and |
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Chief Executive Officer |
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(principal executive officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Charlotte C. Arnold, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of ANI Pharmaceuticals, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 5, 2015 |
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/s/ Charlotte
C. Arnold |
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Charlotte C. Arnold |
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Vice President, Finance and
Chief Financial Officer
(principal financial officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the quarterly report on Form 10-Q of ANI Pharmaceuticals,
Inc. (the "Company") for the quarterly period ended March 31, 2015 (the "Report") as filed with the Securities
and Exchange Commission on the date hereof, the undersigned Chief Executive Officer and Chief Financial Officer of the Company
hereby certify that, to such officer’s knowledge:
(1) the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
This certification is provided solely
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Dated: May 5, 2015 |
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/s/ Arthur S. Przybyl |
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Arthur S. Przybyl |
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President and
Chief Executive Officer |
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(principal executive officer) |
Dated: May 5, 2015 |
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/s/ Charlotte C. Arnold |
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Charlotte C. Arnold |
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Vice President, Finance and |
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Chief Financial Officer |
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(principal financial officer) |
A signed original of this written statement required by Section 906
has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or
its staff upon request.
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