Akorn Reports 2011 Fourth Quarter and Year-End Financial Results

LAKE FOREST, Ill.–(BUSINESS WIRE)–

Akorn, Inc. (NASDAQ: AKRX – News), a niche generic pharmaceutical company,
today reported financial results for the fourth quarter and year ended
December 31, 2011.

Raj Rai, Chief Executive Officer commented, “We had a strong fourth
quarter as a result of our ability to re-launch products that have been
impacted by the industry-wide drug shortages as well as favorable market
conditions for certain approved products. We expect similar trends to
continue in 2012 and our challenge will be in successfully maneuvering
through the shortages while addressing capacity constraints at our
plants. We expect 2012 to be another strong year and will continue
building and expanding our infrastructure to support growth. Key focus
areas for the Company include: expanding manufacturing and RD
capacities, adding a dedicated hospital sales force, and integrating the
Kilitch assets to broaden our global reach.”

2011 Key Highlights and Accomplishments

  • Tenth consecutive quarter of growth in core revenue, adjusted EBITDA
    and gross margin. Akorn’s core business consists of the ophthalmic,
    hospital drugs injectables and contract services segments.

    • Core business revenue growth of 77% over the prior year quarter
      and annual 2011 core revenue growth of 69% over the prior year.
    • Expanded our consolidated annual gross margins from 50% in 2010 to
      58% in 2011 and ended the year with fourth quarter 2011
      consolidated gross margins of 60%.
  • Completed the first full year of product development from new RD
    center established in early 2010. Completed the development of 30
    ANDAs and filed 22.
  • Raised $120 million in a convertible debt offering with the proceeds
    earmarked for business development.

    • Acquired Advanced Vision Research (“AVR”), a leading OTC
      ophthalmic player in the dry eye market.
    • Acquired three niche, branded injectable products from H. Lundbeck
      A/S (“Lundbeck”).
    • Additionally, acquired 4 approved products: 3 NDAs and 1 ANDA, and
      in-licensed 2 products in development.
    • Entered into agreement to acquire certain assets of Kilitch Drugs
      (India) Limited to expand the Company’s capacity and capabilities
      in sterile injectables. The acquisition closed on February 28,
      2012.
    • Acquired a minority stake in Aciex Therapeutics Inc., an
      ophthalmic drug development company with a focus on developing
      novel therapeutics to treat front-of-eye diseases, and signed a
      global licensing and manufacturing agreement for one of Aciex’s
      lead products under development.

Consolidated revenue for the fourth quarter of 2011 was $42.6 million,
up 77% over the prior year quarter’s consolidated revenue of $24.0
million. The increase in consolidated revenue was driven by the initial
launch and the relaunch of a number of injectable and ophthalmic
products, the AVR and Lundbeck acquisitions, and organic growth of
established products, offset by decreases in contract services revenue.

Consolidated revenue for the year 2011 was $136.9 million, up 58% over
the prior year consolidated revenue of $86.4 million.

Consolidated gross margin for the fourth quarter of 2011 was 60%
compared to 53% in the comparable prior year period. Improvements in
gross margin were largely the result of higher utilization of plant
capacities.

Net income for the fourth quarter of 2011 was $5.7 million, or $0.05 per
diluted share, compared to net income of $23.7 million, or $0.23 per
diluted share, in the prior year quarter. Fourth quarter 2010 net income
per diluted share benefited from a $0.21 gain on the sale of the
Akorn-Strides, LLC joint venture product portfolio to Pfizer.

Non-GAAP adjusted net income for the fourth quarter of 2011 was $11.4
million, or $0.11 per diluted share, compared to non-GAAP adjusted net
income of $5.3 million, or $0.05 per diluted share, in the prior year
quarter. Non-GAAP financial measures are defined further below under
“Non-GAAP Financial Measures.”

The Company generated $7.0 million in positive cash flow from operating
activities in the fourth quarter of 2011 and ended the year with $84.0
million in cash and cash equivalents.

2012 Outlook

The Company’s 2012 outlook has been updated to include the impact of the
acquisition of certain assets of Kilitch Drugs (India) Limited. This
revised outlook excludes the impact of any new approvals after March 6,
2012 as well as the impact of the Kilitch transaction on 2012 capital
expenditures.

 

 

 

 

Total revenues

$228 – 238

Million

Total gross margin percentage

58 – 60

%

SGA expenses

$49 – 51

million

RD expenses

$15 – 18

million

Tax provision

$24 – 26

million

GAAP net income

$36 – 39

million

GAAP net income per diluted share

$0.33 – 0.36

Adjusted net income

$48 – 51

million

Adjusted net income per diluted share

$0.44 – 0.46

Adjusted EBITDA

$88 – 93

million

Capital expenditures

$15 – 20

million

 

Akorn’s RD Pipeline

The Company has 37 ANDAs filed with the FDA with a combined annual
market size of approximately $3.7 billion. The Company has completed
development work on 8 additional products with a combined annual market
size of approximately $1.8 billion and expects to file these products
with the FDA shortly.

Fourth Quarter 2011 Conference Call/Webcast

The Company will host a conference call at 10:00 a.m. Eastern Time on
Tuesday, March 6, 2012, to discuss fourth quarter 2011 results followed
by a QA session. The domestic call-in number is (800) 475-6881 and the
international call-in number is (913) 312-0396. The confirmation code
for all callers is 5184961. The URL for the webcast is http://www.videonewswire.com/event.asp?id=85122.

About Akorn, Inc.

Akorn, Inc. is a niche pharmaceutical company engaged in the
development, manufacture and marketing of multisource and branded
pharmaceuticals. Akorn has manufacturing facilities located in Decatur,
Illinois, Somerset, New Jersey, and Paonta Sahib, India, 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, and other statements regarding Akorn’s goals, regulatory
approvals and strategy. 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, Adjusted net income and Adjusted net
income per diluted share, which are non-GAAP financial measures. Since
Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted
share are not GAAP financial measures, they 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 definitions of Adjusted EBITDA, Adjusted net income and Adjusted
net income per diluted share may not be comparable to similarly titled
non-GAAP financial measures reported by other companies. For a full
reconciliation of Adjusted EBITDA and Adjusted net income to GAAP 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, changes
    in the fair value of warrants, and deferred financing cost amortization
  • 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

Adjusted net income, as defined by the company, is calculated as follows:

Income (loss) before income taxes, plus:

  • Intangible asset amortization
  • Non-cash expenses, such as non-cash interest, share-based compensation
    expense, changes in the fair value of warrants, and deferred financing
    cost amortization
  • 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
  • Less an estimated cash tax provision, net of the benefit from
    utilizing NOL carry-forwards.

Adjusted net income per diluted share is equal to Adjusted net income
divided by the actual or anticipated diluted share count for the
applicable period.

 

 

 

 

AKORN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA

(UNAUDITED)

 

 

THREE MONTHS ENDED

TWELVE MONTHS ENDED

DECEMBER 31,

DECEMBER 31,

 

2011

 

 

2010

 

 

2011

 

 

2010

 

 

Revenues

$

42,625

$

24,045

$

136,920

$

86,409

Cost of sales

 

17,050

 

 

11,286

 

 

57,231

 

 

43,944

 

GROSS PROFIT

25,575

12,759

79,689

42,465

 

Selling, general and administrative expenses

9,596

6,591

33,135

22,721

Research and development expenses

3,792

1,872

11,555

6,975

Amortization of intangibles

 

659

 

 

255

 

 

1,733

 

 

1,497

 

TOTAL OPERATING EXPENSES

 

14,047

 

 

8,718

 

 

46,423

 

 

31,193

 

 

OPERATING INCOME

11,528

4,041

33,266

11,272

 

Amortization of deferred financing costs

(187

)

(2,021

)

(1,948

)

(2,841

)

Interest expense, net

(997

)

(191

)

(2,283

)

(942

)

Non-cash interest expense – convertible notes

(914

)

(2,109

)

Equity in earnings of unconsolidated joint venture

20

22,033

14,550

23,368

Change in fair value of warrants liability

(8,881

)

Other non-operating expenses

 

(170

)

 

 

 

(170

)

 

 

INCOME BEFORE INCOME TAXES

9,280

23,862

41,306

21,976

Income tax provision (benefit)

 

3,547

 

 

115

 

 

(1,707

)

 

152

 

NET INCOME

$

5,733

 

$

23,747

 

$

43,013

 

$

21,824

 

 

NET INCOME PER SHARE:

BASIC

$

0.06

 

$

0.25

 

$

0.45

 

$

0.24

 

DILUTED

$

0.05

 

$

0.23

 

$

0.41

 

$

0.22

 

 

SHARES USED IN COMPUTING NET INCOME

PER SHARE:

BASIC

 

94,761

 

 

93,872

 

 

94,549

 

 

92,801

 

DILUTED

 

105,985

 

 

103,336

 

 

103,912

 

 

99,250

 

 

 

AKORN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

IN THOUSANDS, EXCEPT SHARE DATA

 

 

 

DECEMBER 31,

DECEMBER 31,

2011

2010

(Unaudited)

(Audited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

83,962

$

41,623

Trade accounts receivable, net

25,307

11,270

Inventories

35,456

18,917

Deferred taxes, current

9,344

Prepaid expenses and other current assets

 

3,071

 

 

1,803

 

TOTAL CURRENT ASSETS

157,140

73,613

PROPERTY, PLANT AND EQUIPMENT, NET

44,389

32,731

OTHER LONG-TERM ASSETS:

Goodwill

11,863

Other intangibles, net

80,838

3,122

Deferred financing costs

3,864

1,545

Other

 

10,242

 

 

105

 

TOTAL OTHER LONG-TERM ASSETS

 

106,807

 

 

4,772

 

TOTAL ASSETS

$

308,336

 

$

111,116

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Trade accounts payable

$

17,874

$

4,894

Accrued compensation

5,094

3,396

Accrued expenses and other liabilities

5,321

3,473

Advance from unconsolidated joint venture

 

 

 

10,177

 

TOTAL CURRENT LIABILITIES

28,289

21,940

LONG-TERM LIABILITIES:

Convertible notes due 2016

100,808

Purchase consideration payable – Lundbeck

13,841

Deferred taxes, non-current

4,933

Lease incentive obligations

958

1,125

Product warranty liability

 

1,299

 

 

1,299

 

TOTAL LONG-TERM LIABILITIES

 

121,839

 

 

2,424

 

TOTAL LIABILITIES

 

150,128

 

 

24,364

 

SHAREHOLDERS’ EQUITY:

Common stock, no par value — 150,000,000 shares authorized,
94,936,282 and 93,975,334 shares issued and outstanding at December
31, 2011 and December 31, 2010, respectively

 

212,636

182,466

Warrants to acquire common stock

17,946

19,673

Accumulated deficit

 

(72,374

)

 

(115,387

)

TOTAL SHAREHOLDERS’ EQUITY

 

158,208

 

 

86,752

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

308,336

 

$

111,116

 

 

AKORN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

IN THOUSANDS (UNAUDITED)

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

TWELVE MONTHS ENDED

DECEMBER 31,

DECEMBER 31,

 

2011

 

 

2010

 

 

2011

 

 

2010

 

OPERATING ACTIVITIES

Net income

$

5,733

$

23,747

$

43,013

$

21,824

Adjustments to reconcile net income to net cash provided by
operating activities:

 

Depreciation and amortization

1,545

1,145

5,246

5,030

Write-off and amortization of deferred financing fees

187

2,021

1,948

2,841

Non-cash stock compensation expense

1,392

742

5,159

2,737

Non-cash change in fair value of warrants liability

8,881

Non-cash interest on convertible notes

914

2,109

Equity in earnings of unconsolidated joint venture

(20

)

(22,033

)

(14,550

)

(23,368

)

Changes in operating assets and liabilities:

Trade accounts receivable

(5,601

)

489

(13,581

)

(2,045

)

Inventories

(1,143

)

(816

)

(9,307

)

(5,750

)

Deferred tax assets, net

2,277

(4,411

)

Prepaid expenses and other current assets

33

(1,261

)

(183

)

233

Supply agreement termination liabilities

(1,500

)

Trade accounts payable

1,064

(645

)

5,892

1,608

Accrued expenses and other liabilities

 

644

 

 

1,796

 

 

1,668

 

 

1,791

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

7,025

5,185

23,003

12,282

 

INVESTING ACTIVITIES

Payments for acquisitions and equity investments

(45,000

)

(81,734

)

Purchases of property, plant and equipment

(4,725

)

(2,066

)

(14,849

)

(4,710

)

Distribution from unconsolidated joint venture

35,158

3,881

36,265

Purchase of product licensing rights

 

 

 

 

 

(5,678

)

 

 

NET CASH (USED IN) PROVIDED BY

INVESTING ACTIVITIES

(49,725

)

33,092

(98,380

)

31,555

 

FINANCING ACTIVITIES

Proceeds from issuance of convertible notes

120,000

Debt financing costs

(415

)

(5,098

)

Repayments of subordinated debt – related party

(6,439

)

(6,439

)

Repayments of line of credit

(3,000

)

Net proceeds from common stock offering and warrant exercises

1,727

4,969

Proceeds under stock option and stock purchase plans

 

469

 

 

287

 

 

1,087

 

 

639

 

NET CASH PROVIDED BY (USED IN)

FINANCING ACTIVITIES

 

54

 

 

(6,152

)

 

117,716

 

 

(3,831

)

 

INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS

(42,646

)

32,125

42,339

40,006

Cash and cash equivalents at beginning of period

 

126,608

 

 

9,498

 

 

41,623

 

 

1,617

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

83,962

 

$

41,623

 

$

83,962

 

$

41,623

 

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA

IN THOUSANDS (UNAUDITED)

 

 

 

 

 

 

THREE MONTHS ENDED

TWELVE MONTHS ENDED

DECEMBER 31,

DECEMBER 31,

2011

2010

2011

2010

 

NET INCOME

$

5,733

$

23,747

$

43,013

$

21,824

 

ADJUSTMENTS TO ARRIVE AT EBITDA:

Depreciation expense

886

890

3,513

3,533

Amortization expense

659

255

1,733

1,497

Interest expense, net

997

191

2,283

942

Non-cash interest expense – convertible notes

914

2,109

Income tax provision

 

3,547

 

115

 

 

(1,707

)

 

152

 

EBITDA

$

12,736

$

25,198

$

50,944

$

27,948

 

NON-CASH AND OTHER NON-RECURRING INCOME

AND EXPENSES:

Non-cash stock compensation expense

1,392

742

5,159

2,737

Change in fair value of warrants liability

8,881

Write-off and amortization of deferred financing costs

187

2,021

1,948

2,841

Equity in earnings of unconsolidated joint venture that is related
to the sale of the joint venture’s assets

(21,563

)

(13,380

)

(21,563

)

Amortization of the fair value adjustment to AVR’s acquired inventory

 

47

 

 

 

600

 

 

 

ADJUSTED EBITDA

$

14,362

$

6,398

 

$

45,271

 

$

20,844

 

 

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)

 

 

 

 

 

 

THREE MONTHS ENDED

TWELVE MONTHS ENDED

DECEMBER 31,

DECEMBER 31,

2011

2010

2011

2010

 

INCOME BEFORE INCOME TAXES

$

9,280

$

23,862

$

41,306

$

21,976

 

ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:

Non-cash stock compensation expense

1,392

742

5,159

2,737

Non-cash interest expense – convertible notes

914

2,109

Amortization expense

659

255

1,733

1,497

Write-off and amortization of deferred financing costs

187

2,021

1,948

2,841

Change in fair value of warrants liability

8,881

Equity in earnings of unconsolidated joint venture that is related
to the sale of the joint venture’s assets

(21,563

)

(13,380

)

(21,563

)

Amortization of the fair value adjustment to AVR’s acquired inventory

 

47

 

 

 

600

 

 

 

 

ADJUSTED INCOME BEFORE INCOME TAXES

12,479

5,317

39,475

16,369

 

ADJUSTED INCOME TAX PROVISION

 

1,061

 

26

 

 

3,355

 

 

113

 

 

ADJUSTED NET INCOME

$

11,418

$

5,291

 

$

36,120

 

$

16,256

 

 

ADJUSTED NET INCOME PER DILUTED SHARE

$

0.11

$

0.05

 

$

0.35

 

$

0.16

 

 

Akorn, Inc.
Tim Dick, Chief Financial Officer
(847) 279-6100

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