AKRX - Akorn Provides Preliminary Second Quarter 2019 Results

LAKE FOREST, Ill., Aug. 01, 2019 (GLOBE NEWSWIRE) -- Akorn, Inc. (Nasdaq: AKRX), a leading specialty generic pharmaceutical company, today announced its preliminary financial results for the second quarter of 2019.

Second Quarter 2019 and Recent Business Highlights

• Net revenue was $178 million, up 7% from the first quarter of 2019, down 7% from the prior year quarter
• Net loss was $112 million, compared to $82 million in the first quarter of 2019 and $88 million in the prior year quarter
• Adjusted EBITDA was $22 million, compared to $10 million in the first quarter of 2019 and $35 million in the prior year quarter
• Generated positive operating cash flow during the second quarter
• Continued sequential reduction in backorders and failure to supply penalties
• Launched three products:  TheraTears® SteriLid® Antimicrobial, the first FDA Accepted Antimicrobial Eyelid Cleanser, Loteprednol Etabonate Ophthalmic Suspension, 0.5%, and Dicyclomine Hydrochloride Injection, USP
• Received three ANDA approvals: Loteprednol Etabonate Ophthalmic Suspension, 0.5%, Fluticasone Propionate Nasal Spray USP, 50 mcg per spray (OTC), and Azelastine Hydrochloride Nasal Spray, 0.1%
• Responded to FDA warning letter related to the 2018 inspection of our Somerset, NJ manufacturing facility
• Reached non-binding agreement in principle with lead plaintiffs in the securities class action litigation

See "Non-GAAP Financial Measures" below.

Douglas Boothe, Akorn’s President and Chief Executive Officer, stated, “We are pleased that our second quarter results showed continued financial and operational improvements across the business, a strong signal that our operational initiatives are creating value and generating momentum.  We saw reductions in backorders and failure to supply penalties, which have a direct impact on both financial performance and customer satisfaction.”

Boothe continued, “As we look to the second half of 2019, we feel confident in the fundamentals of our business and believe that our focus on compliance, transparency, and accountability will allow us to execute against our strategic growth objectives.  As such, we are updating our net loss guidance and affirming our net revenue and adjusted EBITDA guidance for the full year of 2019 as we strive to return the Company to a path of long-term profitable growth for our stakeholders.”

Summary Financial Results for the Quarter Ended June 30, 2019

Akorn reported net revenue of $178.1 million for the three month period ended June 30, 2019, representing a decrease of $12.8 million, or 6.7%, as compared to net revenue of $190.9 million for the three month period ended June 30, 2018.  The decrease in net revenue in the period was primarily due to $15.0 million decline in organic revenue that was partially offset by $2.6 million net revenue increase in new products and product relaunches.  The $15.0 million decline in organic revenue was due to approximately $29.2 million, or 15.3% in volume declines partially offset by $14.2 million, or 7.5%, of favorable price variance.  The volume decline was principally due to the effect of competition on a number of products, including Fluticasone Rx, Methylene Blue and Clobetasol Cream, as well as supply shortfalls from the continued production ramp-up at our Somerset manufacturing facility.

Consolidated gross profit for the quarter ended June 30, 2019, was $68.0 million, or 38.2% of net revenue, compared to $81.3 million, or 42.6% of net revenue, in the corresponding prior year quarter.  The decline in the gross profit percentage was principally due to increased operating costs associated with FDA compliance related improvement activities as well as increased inventory loss that was partially offset by favorable price and product mix.

GAAP net loss for the second quarter of 2019, was $111.6 million, or $(0.89) per diluted share, compared to GAAP net loss of $88.0 million, or $(0.70) per diluted share, for the same quarter of 2018.  After a net adjustment of $109 million to net loss for non-GAAP items, adjusted diluted earnings per share for the second quarter of 2019 were $(0.02), compared to $0.10 in the same quarter of 2018, after a net adjustment of $101 million to net income for non-GAAP items.  See "Non-GAAP Financial Measures" below.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $(75.4) million for the second quarter of 2019, compared to $(73.0) million for the second quarter of 2018.  Adjusted EBITDA, which is a non-GAAP measure used by management to evaluate the performance of the Akorn business, was $21.8 million for the second quarter of 2019, compared to $34.8 million for the second quarter of 2018.  See "Non-GAAP Financial Measures" below.

Summary Financial Results for the Six Months Ended June 30, 2019

Akorn reported net revenue of $343.9 million for the six month period ended June 30, 2019, representing a decrease of $31.1 million, or 8.3%, as compared to net revenue of $375.0 million for the six month period ended June 30, 2018.  The decrease in net revenue in the period was primarily due to $33.1 million decline in organic revenue that was partially offset by $3.3 million net revenue increase in new products and product relaunches.  The $33.1 million decline in organic revenue was due to approximately $56.8 million, or 15.2% in volume declines partially offset by $23.7 million, or 6.3%, of favorable price variance.  The volume decline was principally due to the effect of competition on a number of products, including Nembutal, Fluticasone Rx and Clobetasol Cream and supply shortfalls from the continued production ramp-up at our Somerset manufacturing facility.

Consolidated gross profit for the six month period ended June 30, 2019, was $121.5 million, or 35.3% of net revenue, compared to $163.5 million, or 43.6% of net revenue, in the corresponding prior year period.  The decline in the gross profit percentage was principally due to increased operating costs associated with FDA compliance related improvement activities and increased inventory loss.

GAAP net loss was $193.8 million for the six month period ended June 30, 2019, or $(1.54) per diluted share, compared to GAAP net loss of $116.7 million for the six month period ended June 30, 2018, or $(0.93) per diluted share.  After a net adjustment of $179 million to net income for non-GAAP items, adjusted diluted earnings per share for the six months ended June 30, 2019 were $(0.12), compared to $0.15 in the corresponding period in the prior year, after a net adjustment of $136 million to net income for non-GAAP items.

EBITDA was $(123.1) million for the six month period ended June 30, 2019, compared to $(79.2) million for the six month period ended June 30, 2018.  Adjusted EBITDA, which is a non-GAAP measure used by management to evaluate the performance of the Akorn business, was $31.6 million for the six month period ended June 30, 2019, compared to $59.3 million for the six month period ended June 30, 2018.  See "Non-GAAP Financial Measures" below.

Updated Full Year 2019 Guidance

The Company is affirming its net revenue and adjusted EBITDA guidance, and updating other guidance as noted below:

• Net revenue for the year is expected to be in the range of $690 to $710 million
  
• Net loss for the year is expected to be in the range of ($273) to ($258) million, an increase of $107 million from initial guidance, primarily driven by the estimated charge related to the securities class action litigation non-binding agreement in principle as well as the impact of our previously disclosed Standstill Agreement
  
• Adjusted EBITDA for the year is expected to be in the range of $71 to $86 million
  
• Expecting approximately $40 million in capital expenditures
  
• Expecting approximately $50 million for FDA compliance and data integrity assessment expenditures, an increase of $10 million from initial guidance primarily driven by expected costs related to the Somerset warning letter

Securities Class Action Litigation

As previously disclosed in our Form 8-K filed with the SEC on July 30, 2019, the Company and the lead plaintiffs in In re Akorn, Inc. Data Integrity Securities Litigation (the “Securities Class Action Litigation”) have advised the court presiding over the matter that they have entered into a non-binding agreement in principle to resolve the Securities Class Action Litigation and the claims of the putative class.  As required by generally accepted accounting principles, the Company recorded an estimated charge and corresponding liability of $74 million associated with the non-binding agreement in principle, which is reflected in the Company’s preliminary financial statements for the quarter ended June 30, 2019.  The corresponding liability is expected to be settled through the issuance of currently authorized Company stock and future contingent cash payments subject to the Company exceeding certain profitability thresholds.  In addition, the lead plaintiffs could receive up to $30 million in insurance proceeds under the Company's insurance policies.

Status of Akorn Pending ANDA Filings

As of July 31, 2019, Akorn had 36 ANDAs pending at the FDA, representing approximately $5.6 billion in annual branded and generic market value according to IQVIA.

*  The value, shown in millions, is the market size estimate based on IQVIA data for the trailing 12 months
 ended May 2019 and excludes any trade and customary allowances and discounts.  The IQVIA market size is not a forecast of our future sales.

** The label "brand" indicates that the pending ANDA filing is for a product that has not yet had generic competition, therefore the market value is that of the branded reference drug.  All filings reported in the table are generic filings.

Conference Call and Webcast Details:

As previously announced, Akorn’s management will hold a conference call with interested investors and analysts at 9:00 a.m. EST on August 1, 2019, to discuss these results and updates in more detail.  The dial-in number to access the call is (844) 249-9382 in the U.S. and Canada and +1 (270) 823-1530 for international callers.  The conference ID is 7567263.  To access the live webcast, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.  A webcast replay of the conference call will be available shortly following the conclusion of the call and will be available for 90 days following the call.  To access the webcast replay, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.

About Akorn:

Akorn, Inc. is a specialty generic 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; Amityville, New York; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals.  Additional information is available on Akorn’s website at www.akorn.com.

Non-GAAP Financial Measures:

To supplement Akorn’s financial results presented in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP (also referred to as “adjusted” or “non-GAAP adjusted”) financial measures in this press release and the accompanying tables, including (1) EBITDA, (2) adjusted EBITDA, (3) adjusted net income, (4) adjusted diluted earnings per share, (5) net debt, and (6) net debt to adjusted EBITDA ratio.  These non-GAAP measures adjust for certain specified items that are described in this release.  The Company believes that each of these non-GAAP financial measures is helpful in understanding its past financial performance and potential future results.  The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for or superior to comparable GAAP measures.

Akorn’s management uses these measures in analyzing its business and financial condition.  Akorn’s management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn’s ongoing results of operations allowing investors to better compare the Company’s results from period to period.

Investors should note that these non-GAAP financial measures used to present financial guidance are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.  Investors should also note that these non-GAAP financial measures have no standardized meaning prescribed by GAAP and; therefore, have limits in their usefulness to investors.  In addition, from time-to-time in the future there may be other items that the Company may exclude for purposes of its non-GAAP financial measures; likewise, the Company may in the future cease to exclude items that it has historically excluded for purposes of its non-GAAP financial measures.  Because of the non-standardized definitions, the non-GAAP financial measures as used by Akorn in this press release and the accompanying tables may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by the Company’s competitors and other companies.

Set forth below is the definition of each non-GAAP financial measure as used by the Company in this press release and a full reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures.

EBITDA, as defined by the Company, represents net (loss) income before net interest income (expense),
provision (benefit) for income taxes and depreciation and amortization.

Adjusted EBITDA, as defined by the Company, is calculated as follows:

Net (loss) income, (minus) plus:

Interest income (expense), net
Provision (benefit) for income taxes
Depreciation and amortization
Non-cash expenses, such as impairment of long-lived assets, share-based compensation expense, and amortization of deferred financing costs
Other adjustments, such as legal settlements, restatement expenses and various merger and acquisition-related expenses, employee retention expense, refinancing advisory fees, fixed asset impairment, executive termination expenses, data integrity investigations & assessment, gain on disposal of fixed assets, and
Fresenius transaction & litigation

Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash or non-recurring operating expenses that have no impact on continuing cash flows as well as other items that are not expected to recur and therefore are not reflective of continuing operating performance.

Adjusted net (loss) income, as defined by the Company, is calculated as follows:

Net (loss) income, (minus) plus:

Amortization expense
Non-cash expenses, such as impairment of long-lived assets, share-based compensation expense, and amortization of deferred financing costs
Other adjustments, such as legal settlements, restatement expenses and various merger and acquisition-related expenses, employee retention expense, refinancing advisory fees, fixed asset impairment, executive termination expenses, data integrity investigations & assessment, gain on disposal of fixed assets, and
Fresenius transaction & litigation
Less an estimated tax provision, net of the benefit from utilizing net operating loss carry-forwards effected for the adjustments noted above

Adjusted diluted earnings per share, as defined by the Company, is equal to adjusted net income divided by the actual or anticipated diluted share count for the applicable period.  The Company believes that adjusted net income and adjusted diluted earnings per share are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance.

Net debt, as defined by the Company, is gross debt including Akorn’s term loan and revolving debt balances (if applicable) less cash and cash equivalents.

Net debt to adjusted EBITDA ratio, as defined by the Company, is net debt divided by the trailing twelve months adjusted EBITDA.

The shortcomings of non-GAAP financial measures as guidance or performance measures are that they provide a view of the Company’s results of operations without including all events during a period.  For example, adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the 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.  Adjusted net income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include share-based compensation, which is an important and material element of the Company's compensation package for its directors, officers and other key employees.  Due to the inherent limitations of non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.  Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable GAAP measures as presented in this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes statements that may constitute "forward-looking statements", including expectations regarding the Company’s business plan and initiatives, financial performance, product launches, pending ANDA filings, the financial guidance for 2019, the non-binding agreement in principle to settle the Securities Class Action Litigation, and other statements regarding the Company’s plans and strategy.  When used in this document, the words “will,” “expect,” “continue," “believe,” “anticipate,” “estimate,” “intend,” “could,” “strives” and similar expressions are generally intended to identify forward-looking statements.  These statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  A number of important factors could cause actual results of the Company and its subsidiaries to differ materially from those indicated by such forward-looking statements.  These factors include, but are not limited to:  (i) the effect of the Delaware Court of Chancery’s October 1, 2018 decision against the Company and the Delaware Supreme Court’s December 7, 2018 order affirming the Chancery Court’s decision on the Company’s ability to retain and hire key personnel, its ability to maintain relationships with its customers, suppliers and others with whom it does business, or its operating results and business generally, (ii) the risk that ongoing or future litigation against the defendants or related to the court’s decision may result in significant costs of defense, indemnification and/or liability, (iii) the outcome of the investigation conducted by the Company, with the assistance of outside consultants, into alleged breaches of FDA data integrity requirements relating to product development at the Company and any actions taken by the Company, third parties or the FDA as a result of such investigations, (iv) the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any, (v) the timing and success of product launches, (vi) difficulties or delays in manufacturing, (vii) the Company’s increased indebtedness and obligation to comply with certain covenants and other obligations under its standstill agreement with its first lien term loan lenders (the “Standstill Agreement”), (viii) the Company’s obligation under the Standstill Agreement to enter into a comprehensive amendment that is satisfactory in form and substance to the first lien term loan lenders, (ix) the risk that the parties will not enter into a definitive settlement agreement in connection with the Securities Class Action Litigation, (x) the risk that the holders of a significant number of shares may opt out of and elect not to participate in or be bound by the proposed Securities Class Action Litigation settlement, (xi) the risk that a definitive settlement agreement in connection the with Securities Class Action Litigation may not obtain the necessary approval by the court or may be terminated in accordance with its terms, (xii) the risk that insurance proceeds, common shares or other consideration contemplated to be exchanged pursuant to the proposed Securities Class Action Litigation settlement is not available at the appropriate time and (xiii) such other risks and uncertainties outlined in the risk factors detailed in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (as filed with the Securities and Exchange Commission (“SEC”) on March 1, 2019) and in Part II, Item 1A, “Risk Factors,” of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 (as filed with the SEC on May 9, 2019) and other risk factors identified from time to time in the Company’s filings with the SEC.  Readers should carefully review these risk factors, and should not place undue reliance on the Company’s forward-looking statements.  These forward-looking statements are based on information, plans and estimates at the date of this press release.  The Company undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)

AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

Reconciliation of GAAP Net (Loss) to Non-GAAP EBITDA and Adjusted EBITDA
(In Thousands)
(Unaudited)

The table below sets forth expenses included in Net (loss) that have not been included as adjustments to arrive at EBITDA and Adjusted EBITDA in the preceding table.

Reconciliation of GAAP Net (Loss) to non-GAAP Adjusted Net (Loss) and Adjusted Diluted (Loss) Earnings Per Share
(In Thousands, Except Per Share Data)
(Unaudited)

AKORN, INC.
Reconciliation of GAAP Debt to Non-GAAP Net Debt and Net Debt to Adjusted EBITDA Ratio
(In Thousands, Except Net Debt to Adjusted EBITDA Ratio)

AKORN, INC.
Reconciliation of 2019 Financial Guidance of GAAP Net Loss to Non-GAAP Adjusted EBITDA
(In Millions)

Investors/Media:
(847) 279-6162
Investor.relations@akorn.com