LAKE FOREST, Ill.--(BUSINESS WIRE)--Akorn, Inc. (NASDAQ: AKRX), a niche specialty pharmaceutical company, today reported financial results for the second quarter of 2011. The Company also separately announced that it has entered into an agreement to acquire a minority ownership in Westborough, MA, based Aciex Therapeutics Inc., an ophthalmic drug development company with a focus on developing novel therapeutics to treat front-of-eye diseases. Aciex’s pipeline consists of three clinical stage assets and four pre-IND stage assets. In addition, Akorn signed a global licensing and manufacturing agreement for one of Aciex’s lead products.
Second Quarter Highlights
- Revenue growth of 59% over the comparable prior year quarter, or 41% excluding the impact of AVR.
- Eighth consecutive quarter of core revenue and adjusted EBITDA growth. Akorn’s core business consists of the ophthalmic, hospital drugs & injectables and contract services segments.
- Raised $120 million in a convertible debt offering.
- Generated $6.0 million in operating cash flow and ended quarter with $134.5 million in cash and cash equivalents.
- Acquired AVR, a leader in the over-the-counter dry eye market.
- Acquired three products with a combined brand/generic annual market size of $20 million.
- Filed four new internally developed ANDAs with a combined annual market size of $190 million.
- Received FDA approval for injectable Levofloxacin 25mg/mL single-use vials.
Consolidated revenue for the second quarter of 2011 was $32.1 million, up 59% over the comparable prior year quarter consolidated revenue of $20.2 million. The increase in revenue was the result of partial quarter AVR sales totaling $3.7 million, the continued growth of products launched in 2010, strong organic growth in established injectable and ophthalmic products and an increase in seasonal allergy ophthalmic sales.
Consolidated gross margin for the second quarter of 2011 was 56% compared to 49% in the comparable prior year period. Cost of sales in the second quarter 2011 included approximately $0.7 million in non-cash fair value adjustments for acquired AVR inventory. Sustained improvements in gross margin are the result of favorable product mix, selected price increases, higher utilization of plant capacities and increased sales of higher margin products introduced in 2010.
Second quarter 2011 adjusted EBITDA was $10.6 million compared with $4.2 million in the comparable prior year quarter. Net income for the second quarter of 2011 was $17.9 million, and earnings per share were $0.17 per diluted share compared to a net loss of $9.4 million and loss per share of $0.10 in the comparable prior year quarter. Second quarter 2011 included $13.4 million of gain on Akorn-Strides LLC’s sale of its remaining abbreviated new drug approvals to Pfizer. Akorn-Strides LLC also ceased operations during the quarter. Second quarter 2011 results also included the acceleration of $1.4 million in amortization expense for deferred financing costs related to the early termination of the Company’s $10.0 million revolving credit agreement with EJ Funds LP as well as $0.6 million in incremental interest expense from the convertible debt issued on June 1.
Raj Rai, Chief Executive Officer commented, “We had another great quarter as both our ophthalmic and specialty injectable product lines continue to show sequential growth. In addition, we are excited about the recent acquisition of Advanced Vision Research (AVR) which is adding further to the growth momentum in our company. Given the strength of our business, we are increasing our guidance for the year and plan to increase our R&D infrastructure to develop 10 to 15 additional products annually.”
2011 Revised Outlook
- The Company projects 2011 revenue in the range of $124 million to $126 million
- The Company’s 2011 gross margin is projected to be approximately 55%.
- The Company projects 2011 adjusted EBITDA of approximately $37 million to $39 million.
- In 2011, the Company expects to spend approximately $15 million to $20 million in capital expenditures to increase plant capacities and improve efficiencies.
- The Company is projecting 2011 R&D expenses of approximately $10 million to $11 million.
- The Company’s 2011 outlook excludes the impact of any new approvals after August 1, 2011.
Akorn’s R&D Pipeline
The Company has 22 ANDAs filed with the FDA with a combined annual market size of approximately $2.8 billion. The Company has completed development work on 13 additional products with a combined annual market size of approximately $1.3 billion and expects to file these products with the FDA shortly.
Second Quarter 2011 Conference Call
The Company will host a conference call at 10:00 a.m. Eastern Time on Tuesday, August 2, 2011, to discuss second quarter 2011 results followed by a Q&A session. The domestic call-in number is (800) 835-9927 and the international call-in number is (913) 312-0831. The confirmation code for all callers is 6254677. The URL for the webcast is http://www.videonewswire.com/event.asp?id=80562.
About Akorn, Inc.
Akorn, Inc. is a niche specialty pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois and Somerset, New Jersey where the Company manufactures ophthalmic and injectable pharmaceuticals. Additional information is available on the Company’s website at www.akorn.com.
Forward Looking Statement
This press release includes statements that may constitute "forward-looking statements", including projections of certain measures of Akorn's results of operations, projections of certain charges and expenses, statements regarding Akorn's goals, regulatory approvals and strategy and other statements relating to the acquisition of AVR by Akorn. Such forward looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes and results to differ materially from current expectations. No forward-looking statement can be guaranteed. Among other risks, there can be no guarantee that the acquisition will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the acquisition will be realized. Akorn cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Factors that could cause or contribute to such differences include, but are not limited to: statements relating to future steps we may take, prospective products, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. These cautionary statements should be considered in connection with any subsequent written or oral forward-looking statements that may be made by the company or by persons acting on its behalf and in conjunction with its periodic SEC filings. You are advised, however, to consult any further disclosures we make on related subjects in our reports filed with the SEC. In particular, you should read the discussion in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in our most recent Annual Report on Form 10-K, as it may be updated in subsequent reports filed with the SEC. That discussion covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results. Other factors besides those listed there could also adversely affect our results.
Non-GAAP Financial Measures
In addition to reporting all financial information required in accordance with generally accepted accounting principles (GAAP), Akorn is also reporting Adjusted EBITDA, which is a non-GAAP financial measure. Since Adjusted EBITDA is not a GAAP financial measure, it should not be used in isolation or as a substitute for consolidated statements of operations and cash flow data prepared in accordance with GAAP. In addition, Akorn’s definition of Adjusted EBITDA may not be comparable to similarly titled non-GAAP financial measures reported by other companies. For a full reconciliation of Adjusted EBITDA to net income (loss), please see the attachments to this earnings release.
Adjusted EBITDA, as defined by the company, is calculated as follows:
Net income (loss), plus:
- Interest income (expense), net
- Provision for income taxes
- Depreciation and amortization
- Non-cash expenses, such as share-based compensation expense and changes in the fair value of warrants
- Other adjustments, such as equity in earnings of unconsolidated joint venture related to the sale of the joint venture's assets, and amortization of the fair value adjustment to inventory acquired through business acquisitions
The Company believes that Adjusted EBITDA is a meaningful indicator, to both Company management and investors, of the past and expected ongoing operating performance of the Company. EBITDA is a commonly used and widely accepted measure of financial performance. Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash and non-recurring operating expenses which have little to no bearing on cash flows and may be subject to uncontrollable factors not reflective of the Company’s true operational performance (i.e. fair value adjustments to the carrying value of stock warrants liability).
While the Company uses Adjusted EBITDA in managing and analyzing its business and financial condition and believes it to be useful to investors in their evaluating the Company’s performance, Adjusted EBITDA has certain shortcomings. Specifically, Adjusted EBITDA does not take into account the impact of capital expenditures on the liquidity or GAAP financial performance of the company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense. Accordingly, the Company’s management utilizes comparable GAAP financial measures to evaluate the business in conjunction with Adjusted EBITDA and encourages investors to do likewise.
| AKORN, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| IN THOUSANDS, EXCEPT PER SHARE DATA | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenues | $ | 32,148 | $ | 20,185 | $ | 57,592 | $ | 40,705 | ||||||||
| Cost of sales | 14,265 | 10,322 | 25,456 | 22,414 | ||||||||||||
| GROSS PROFIT | 17,883 | 9,863 | 32,136 | 18,291 | ||||||||||||
| Selling, general and administrative expenses | 8,131 | 5,993 | 14,533 | 10,750 | ||||||||||||
| Research and development expenses | 2,767 | 1,881 | 4,654 | 3,313 | ||||||||||||
| Amortization of intangibles | 309 | 572 | 565 | 986 | ||||||||||||
| TOTAL OPERATING EXPENSES | 11,207 | 8,446 | 19,752 | 15,049 | ||||||||||||
| OPERATING INCOME | 6,676 | 1,417 | 12,384 | 3,242 | ||||||||||||
| Write-off and amortization of deferred financing costs | (1,403 | ) | (273 | ) | (1,596 | ) | (546 | ) | ||||||||
| Interest expense, net | (324 | ) | (234 | ) | (313 | ) | (524 | ) | ||||||||
| Non-cash interest expense - convertible notes | (286 | ) | - | (286 | ) | - | ||||||||||
| Equity in earnings of unconsolidated joint venture | 13,706 | 369 | 14,530 | 833 | ||||||||||||
| Change in fair value of warrants liability | - | (10,679 | ) | - | (8,881 | ) | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 18,369 | (9,400 | ) | 24,719 | (5,876 | ) | ||||||||||
| Income tax provision | 423 | 33 | 963 | 37 | ||||||||||||
| NET INCOME (LOSS) | $ | 17,946 | $ | (9,433 | ) | $ | 23,756 | $ | (5,913 | ) | ||||||
| NET INCOME (LOSS) PER SHARE: | ||||||||||||||||
| BASIC | $ | 0.19 | $ | (0.10 | ) | $ | 0.25 | $ | (0.06 | ) | ||||||
| DILUTED | $ | 0.17 | $ | (0.10 | ) | $ | 0.23 | $ | (0.06 | ) | ||||||
| SHARES USED IN COMPUTING NET INCOME (LOSS) | ||||||||||||||||
| PER SHARE: | ||||||||||||||||
| BASIC | 94,579 | 92,745 | 94,389 | 91,764 | ||||||||||||
| DILUTED | 105,233 | 92,745 | 104,653 | 91,764 | ||||||||||||
| AKORN, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| IN THOUSANDS, EXCEPT SHARE DATA | ||||||||
| JUNE 30, | DECEMBER 31, | |||||||
| 2011 | 2010 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 134,483 | $ | 41,623 | ||||
| Trade accounts receivable, net | 16,949 | 11,270 | ||||||
| Inventories | 26,814 | 18,917 | ||||||
| Prepaid expenses and other current assets |
3,787 |
1,803 | ||||||
|
TOTAL CURRENT ASSETS |
182,033 | 73,613 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 37,498 | 32,731 | ||||||
| OTHER LONG-TERM ASSETS: | ||||||||
| Goodwill | 14,749 | - | ||||||
| Other intangibles, net | 16,057 | 3,122 | ||||||
| Deferred financing costs | 3,719 | 1,545 | ||||||
| Other | 1,268 | 105 | ||||||
|
TOTAL OTHER LONG-TERM ASSETS |
35,793 | 4,772 | ||||||
|
TOTAL ASSETS |
$ | 255,324 | $ | 111,116 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade accounts payable | $ | 10,707 | $ | 4,894 | ||||
| Accrued compensation | 2,896 | 3,396 | ||||||
| Accrued expenses and other liabilities | 4,672 | 3,473 | ||||||
| Advance from unconsolidated joint venture | - | 10,177 | ||||||
|
TOTAL CURRENT LIABILITIES |
18,275 | 21,940 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Convertible notes due 2016 | 98,903 | - | ||||||
| Lease incentive obligations | 1,050 | 1,125 | ||||||
| Product warranty liability | 1,299 | 1,299 | ||||||
|
TOTAL LONG-TERM LIABILITIES |
101,252 | 2,424 | ||||||
|
TOTAL LIABILITIES |
119,527 | 24,364 | ||||||
| SHAREHOLDERS' EQUITY: | ||||||||
| Common stock, no par value -- 150,000,000 shares authorized, 94,624,138 | ||||||||
|
and 93,975,334 shares issued and outstanding at June 30, 2011 |
||||||||
|
and December 31, 2010, respectively |
209,482 | 182,466 | ||||||
| Warrants to acquire common stock | 17,946 | 19,673 | ||||||
| Accumulated deficit | (91,631 | ) | (115,387 | ) | ||||
|
TOTAL SHAREHOLDERS' EQUITY |
135,797 | 86,752 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 255,324 | $ | 111,116 | ||||
| AKORN, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||||||
| IN THOUSANDS (UNAUDITED) | ||||||||||||||||
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||
| Net income (loss) | $ | 17,946 | $ | (9,433 | ) | $ | 23,756 | $ | (5,913 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash | ||||||||||||||||
| provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 1,183 | 1,443 | 2,309 | 2,745 | ||||||||||||
| Write-off and amortization of deferred financing fees | 1,403 | 273 | 1,596 | 546 | ||||||||||||
| Non-cash stock compensation expense | 1,763 | 1,004 | 2,494 | 1,305 | ||||||||||||
| Non-cash interest on convertible notes | 286 | - | 286 | - | ||||||||||||
| Non-cash change in fair value of warrants liability | - | 10,679 | - | 8,881 | ||||||||||||
| Equity in earnings of unconsolidated joint venture | (13,706 | ) | (369 | ) | (14,530 | ) | (833 | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Trade accounts receivable | (1,885 | ) | (492 | ) | (5,068 | ) | (2,905 | ) | ||||||||
| Inventories | (2,608 | ) | (3,023 | ) | (3,521 | ) | (2,122 | ) | ||||||||
| Prepaid expenses and other current assets | (1,113 | ) | 385 | (1,120 | ) | 960 | ||||||||||
| Supply agreement termination liabilities | - | (1,500 | ) | - | (1,500 | ) | ||||||||||
| Trade accounts payable | 1,639 | 804 | 3,222 | 781 | ||||||||||||
| Accrued expenses and other liabilities | 1,107 | (47 | ) | (1,087 | ) | (256 | ) | |||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 6,015 | (276 | ) | 8,337 | 1,689 | |||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||
| Purchases of property, plant and equipment | (4,108 | ) | (426 | ) | (6,239 | ) | (1,611 | ) | ||||||||
| Payments for acquisitions | (26,011 | ) | - | (26,011 | ) | - | ||||||||||
| Purchase of product licensing rights | (4,000 | ) | - | (4,000 | ) | - | ||||||||||
| Distribution from unconsolidated joint venture | 1,339 | 228 | 3,131 | 958 | ||||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (32,780 | ) | (198 | ) | (33,119 | ) | (653 | ) | ||||||||
| FINANCING ACTIVITIES | ||||||||||||||||
| Proceeds from issuance of convertible notes | 120,000 | - | 120,000 | - | ||||||||||||
| Debt financing costs | (4,587 | ) | - | (4,587 | ) | - | ||||||||||
| Proceeds under stock option and stock purchase plans | 123 | 42 | 502 | 137 | ||||||||||||
| Repayments of line of credit | - | - | - | (3,000 | ) | |||||||||||
| Net proceeds from common stock offering and warrant exercises | - | 2,500 | 1,727 | 4,969 | ||||||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 115,536 | 2,542 | 117,642 | 2,106 | ||||||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | 88,771 | 2,068 | 92,860 | 3,142 | ||||||||||||
| Cash and cash equivalents at beginning of period | 45,712 | 2,691 | 41,623 | 1,617 | ||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 134,483 | $ | 4,759 | $ | 134,483 | $ | 4,759 | ||||||||
| AKORN, INC. | ||||||||||||||||
| RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA | ||||||||||||||||
| IN THOUSANDS (UNAUDITED) | ||||||||||||||||
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| NET INCOME (LOSS) | $ | 17,946 | $ | (9,433 | ) | $ | 23,756 | $ | (5,913 | ) | ||||||
| ADJUSTMENTS TO ARRIVE AT EBITDA: | ||||||||||||||||
| Depreciation and amortization expense | 1,183 | 1,443 | 2,309 | 2,745 | ||||||||||||
| Interest expense, net | 324 | 234 | 313 | 524 | ||||||||||||
| Non-cash interest expense - convertible notes | 286 | - | 286 | - | ||||||||||||
| Income tax provision | 423 | 33 | 963 | 37 | ||||||||||||
| EBITDA | $ | 20,162 | $ | (7,723 | ) | $ | 27,627 | $ | (2,607 | ) | ||||||
| NON-CASH AND OTHER NON-RECURRING INCOME | ||||||||||||||||
| AND EXPENSES: | ||||||||||||||||
| Non-cash stock compensation expense | 1,763 | 1,004 | 2,494 | 1,305 | ||||||||||||
| Change in fair value of warrants liability | - | 10,679 | - | 8,881 | ||||||||||||
| Write-off and amortization of deferred financing costs | 1,403 | 273 | 1,596 | 546 | ||||||||||||
|
Equity in earnings of unconsolidated joint venture |
||||||||||||||||
|
related to the sale of the joint venture's assets |
(13,380 | ) | - | (13,380 | ) | - | ||||||||||
| Amortization of the fair value adjustment to AVR | ||||||||||||||||
| acquired inventory | 677 | - | 677 | - | ||||||||||||
| ADJUSTED EBITDA | $ | 10,625 | $ | 4,233 | $ | 19,014 | $ | 8,125 | ||||||||