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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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 56623

(Address of principal executive offices)

(218) 634-3500

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on which registered:

Common Stock

 

ANIP

 

Nasdaq Global Market

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 3, 2022 there were 17,235,965 shares of common stock and 10,864 shares of class C special stock of the registrant outstanding.

Table of Contents

ANI PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS

 

 

Page

PART I —FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets — As of March 31, 2022 and December 31, 2021

5

Condensed Consolidated Statements of Operations — For the Three Months Ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2022 and 2021

7

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity — For the Three Months Ended March 31, 2022 and 2021

8

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2022 and 2021

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

45

PART II —OTHER INFORMATION

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults upon Senior Securities

47

Item 4.

Mine Safety Disclosures

47

Item 5.

Other Information

47

Item 6.

Exhibits

47

Signatures

48

2

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, but are not limited to, statements about future operations, strategies and growth potential, the revenue potential (licensing, royalty and sales) of products we sell, development timelines, expected timeframe for submission of new drug applications or supplemental new drug applications to the U.S. Food and Drug Administration (the “FDA”), pipeline or potential markets for our products, selling and marketing strategies and associated costs to support the sales of Purified Cortrophin™ Gel (Repository Corticotropin Injection USP) (“Cortrophin Gel”), impact of accounting principles, litigation expenses, liquidity and capital resources, the impact of the novel coronavirus (“COVID-19”) global pandemic on our business, 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. Such forward-looking statements are based on the reasonable beliefs of our management as well as assumptions made by and information currently available to our management. Readers should not put undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified; therefore, our actual results may differ materially from those described in any forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our periodic reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including those discussed in the “Risk Factors” section in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the following factors: 

risks that we may face with respect to importing raw materials;
delays or failure in obtaining approvals by the FDA of the products we sell;
changes in policy or actions that may be taken by the FDA and other regulatory agencies, including drug recalls;
the ability of our manufacturing partners to meet our product demands and timelines;
our dependence on single source suppliers of ingredients due to the time and cost to validate a second source of supply;
acceptance of our products at levels that will allow us to achieve profitability;
our ability to develop, license or acquire, and commercialize new products;
the level of competition we face and the legal, regulatory and/or legislative strategies employed by our competitors to prevent or delay competition from generic alternatives to branded products;
our ability to protect our intellectual property rights;
the impact of legislative or regulatory reform on the pricing for pharmaceutical products;
the impact of any litigation to which we are, or may become, a party;
our ability, and that of our suppliers, development partners, and manufacturing partners, to comply with laws, regulations and standards that govern or affect the pharmaceutical and biotechnology industries;
our ability to maintain the services of our key executives and other personnel; and
general business and economic conditions and the effects and duration of outbreaks of public health emergencies, such as COVID-19.

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, 2021, including the factors described in “Item 1A. Risk Factors.” 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

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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.

The Company may use its investor relations website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company's investor relations website. We encourage investors and others interested in our company to review the information we post on our investor relations website in addition to filings with the Securities and Exchange Commission, press releases, public conference calls and webcasts. Information contained on the Company's website is not included as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

NOTE REGARDING TRADEMARKS

Apexicon®, Cortenema®, Purified Cortrophin Gel, Cortrophin-Zinc®, Inderal® LA, Inderal® XL, InnoPran XL®, Lithobid®, Reglan®, Vancocin®, and Veregen® are registered trademarks subject to trademark protection and are owned by ANI Pharmaceuticals, Inc. and its consolidated subsidiaries. Atacand® and Atacand HCT® are the property of AstraZeneca AB and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Arimidex® and Casodex® are the property of AstraZeneca UK Limited and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Oxistat® is the property of Fougera Pharmaceuticals Inc. and licensed to ANI Pharmaceuticals, Inc. for U.S. sales of Oxistat® Lotion. Pandel® is property of Taisho Pharmaceutical Co, Ltd. and licensed to ANI Pharmaceuticals for U.S. sales of Pandel® creme.

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Part I — FINANCIAL INFORMATION

Item 1.   Financial Statements

ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

    

March 31, 

    

December 31, 

2022

2021

Assets

Current Assets

 

  

 

  

Cash and cash equivalents

$

76,911

$

100,300

Accounts receivable, net of $113,970 and $105,260 of adjustments for chargebacks and other allowances at March 31, 2022 and December 31, 2021, respectively

 

131,625

 

128,526

Inventories, net

 

83,155

 

81,693

Prepaid income taxes

 

1,982

 

3,667

Prepaid expenses and other current assets

 

7,726

 

7,589

Total Current Assets

 

301,399

 

321,775

Non-current Assets

Property and equipment

 

77,677

 

75,627

Accumulated depreciation

(24,964)

(22,956)

Property and equipment, net

52,713

52,671

Restricted cash

 

5,000

 

5,001

Deferred tax assets, net of deferred tax liabilities and valuation allowance

 

73,539

 

67,936

Intangible assets, net

 

281,573

 

294,122

Goodwill

 

28,188

 

27,888

Derivatives and other non-current assets

 

2,434

 

2,205

Total Assets

$

744,846

$

771,598

Liabilities, Mezzanine Equity, and Stockholders’ Equity

 

  

 

  

Current Liabilities

 

  

 

  

Current debt, net of deferred financing costs

$

850

$

850

Accounts payable

 

22,059

 

22,967

Accrued royalties

 

4,998

 

6,225

Accrued compensation and related expenses

 

3,265

 

8,522

Accrued government rebates

 

4,557

 

5,492

Returned goods reserve

 

35,554

 

35,831

Deferred revenue

 

116

 

87

Accrued expenses and other

 

8,133

 

7,563

Total Current Liabilities

 

79,532

 

87,537

Non-current Liabilities

 

  

 

  

Non-current debt, net of deferred financing costs and current component

 

286,307

 

286,520

Non-current contingent consideration

 

32,053

 

31,000

Derivatives and other non-current liabilities

 

860

 

7,801

Total Liabilities

$

398,752

$

412,858

Commitments and Contingencies (Note 12)

 

  

 

  

Mezzanine Equity

 

  

 

  

Convertible Preferred Stock, Series A, $0.0001 par value, 1,666,667 shares authorized; 25,000 shares issued and outstanding at March 31, 2022 and December 31, 2021

 

24,850

 

24,850

Stockholders’ Equity

 

  

 

  

Common Stock, $0.0001 par value, 33,333,334 shares authorized; 17,373,730 shares issued and 17,251,022 outstanding at March 31, 2022; 16,912,401 shares issued and 16,829,739 shares outstanding at December 31, 2021

 

1

 

1

Class C Special Stock, $0.0001 par value, 781,281 shares authorized; 10,864 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

Preferred Stock, $0.0001 par value, 1,666,667 shares authorized; 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

Treasury stock, 122,708 shares of common stock, at cost, at March 31, 2022 and 82,662 shares of common stock, at cost, at December 31, 2021

 

(4,253)

 

(3,135)

Additional paid-in capital

 

391,084

 

387,844

Accumulated deficit

 

(68,300)

 

(47,765)

Accumulated other comprehensive income/(loss), net of tax

 

2,712

 

(3,055)

Total Stockholders’ Equity

 

321,244

 

333,890

Total Liabilities, Mezzanine Equity, and Stockholders’ Equity

$

744,846

$

771,598

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended March 31, 

    

2022

    

2021

    

Net Revenues

$

64,477

$

54,521

Operating Expenses

 

  

 

  

Cost of sales (excluding depreciation and amortization)

 

34,271

 

19,985

Research and development

 

5,274

 

2,968

Selling, general, and administrative

 

28,817

 

17,587

Depreciation and amortization

 

14,557

 

10,898

Contingent consideration fair value adjustment

753

Purified Cortrophin Gel pre-launch charges

38

Total Operating Expenses

 

83,672

 

51,476

Operating (Loss)/Income

 

(19,195)

 

3,045

Other Expense, net

 

  

 

  

Interest expense, net

 

(6,613)

 

(2,454)

Other expense, net

 

(89)

 

(515)

(Loss)/Income Before Benefit for Income Taxes

 

(25,897)

 

76

Benefit for income taxes

 

5,767

 

10

Net (Loss)/Income

$

(20,130)

$

86

Dividends on Series A Convertible Preferred Stock

(405)

Net (Loss)/Income Available to Common Shareholders

$

(20,535)

$

86

Basic and Diluted (Loss)/Earnings Per Share:

 

  

 

  

Basic (Loss)/Earnings Per Share

$

(1.27)

$

0.01

Diluted (Loss)/Earnings Per Share

$

(1.27)

$

0.01

Basic Weighted-Average Shares Outstanding

 

16,137

 

12,004

Diluted Weighted-Average Shares Outstanding

 

16,137

 

12,017

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income/(Loss)

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2022

    

2021

    

    

Net (loss)/income

$

(20,130)

$

86

Other comprehensive income/(loss), net of tax:

 

  

 

  

Gains on interest rate swap, net of tax

 

5,767

 

6,405

Total other comprehensive income/(loss), net of tax

 

5,767

 

6,405

Total comprehensive (loss)/income, net of tax

$

(14,363)

$

6,491

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(in thousands)

(unaudited)

    

Mezzanine Equity

Total Mezzanine

Mezzanine Equity

Series A Convertible

    

Common

    

Common

Class C

    

Additional

    

Treasury

    

    

Accumulated

    

    

Equity and

Series A Convertible

Preferred Stock

Stock

Stock

Special

Paid-in

Stock

Treasury

Other Comprehensive

Stockholders'

Preferred Stock

Shares

Par Value

Shares

Stock

Capital

Shares

Stock

Gain/(Loss), Net of Tax

Accumulated Deficit

Equity

Balance, December 31, 2020

$

$

1

 

12,430

$

$

214,354

 

76

$

(2,246)

$

(11,437)

$

(4,972)

$

195,700

Stock-based Compensation Expense

 

 

 

 

1,869

 

 

 

 

 

1,869

Treasury Stock Purchases for Restricted Stock Vests

 

 

 

 

 

10

 

(348)

 

 

 

(348)

Issuance of Restricted Stock Awards

 

 

438

 

 

 

 

 

 

 

Restricted Stock Awards Forfeitures

(38)

Other Comprehensive Income

 

6,405

6,405

Net Income

 

 

 

 

 

 

 

 

86

 

86

Balance, March 31, 2021

$

$

1

 

12,830

$

$

216,223

 

86

$

(2,594)

$

(5,032)

$

(4,886)

$

203,712

Balance, December 31, 2021

$

24,850

25

$

1

 

16,913

$

$

387,844

 

83

$

(3,135)

$

(3,055)

$

(47,765)

$

358,740

Stock-based Compensation Expense

 

3,237

 

3,237

Treasury Stock Purchases for Restricted Stock Vests

 

40

(1,118)

(1,118)

Issuance of Common Shares upon Stock Option and ESPP Exercise

 

3

3

Issuance of Restricted Stock Awards

 

461

Dividends on Series A Convertible Preferred Stock

(405)

(405)

Other Comprehensive Income

 

5,767

5,767

Net Loss

 

 

 

 

 

 

(20,130)

 

(20,130)

Balance, March 31, 2022

$

24,850

25

$

1

17,374

$

$

391,084

123

$

(4,253)

$

2,712

$

(68,300)

$

346,094

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended March 31, 

2022

2021

Cash Flows From Operating Activities

 

  

 

  

 

Net (loss)/income

$

(20,130)

$

86

Adjustments to reconcile net (loss)/income to net cash and cash equivalents (used in)/provided by operating activities:

 

  

 

  

Stock-based compensation

 

3,237

 

1,869

Deferred taxes

 

(7,464)

 

(279)

Depreciation and amortization

 

14,557

 

10,898

Non-cash interest

 

982

 

572

Contingent consideration fair value adjustment

 

753

 

Changes in operating assets and liabilities:

 

 

  

Accounts receivable, net

 

(3,099)

 

3,917

Inventories, net

 

(1,462)

 

876

Prepaid expenses and other current assets

 

(137)

 

379

Accounts payable

 

(1,009)

 

2,462

Accrued royalties

 

(1,227)

 

(1,097)

Current income taxes payable, net

 

1,685

 

(247)

Accrued government rebates

 

(935)

 

846

Returned goods reserve

 

(248)

 

1,792

Accrued expenses, accrued compensation, and other

 

(4,445)

 

(1,406)

Net Cash and Cash Equivalents (Used in)/Provided by Operating Activities

 

(18,942)

 

20,668

Cash Flows From Investing Activities

 

  

 

  

Acquisition of product rights, IPR&D, and other related assets

 

(229)

 

(39)

Acquisition of property and equipment, net

 

(1,949)

 

(698)

Net Cash and Cash Equivalents Used in Investing Activities

 

(2,178)

 

(737)

Cash Flows From Financing Activities

 

  

 

  

Payments on borrowings under credit agreements

 

(750)

 

(2,377)

Series A convertible preferred stock dividends paid

 

(405)

 

Proceeds from stock option exercises and ESPP purchases

 

3

 

Treasury stock purchases for restricted stock vests

 

(1,118)

 

(348)

Net Cash and Cash Equivalents Used in by Financing Activities

 

(2,270)

 

(2,725)

Net Change in Cash and Cash Equivalents

 

(23,390)

 

17,206

Cash and cash equivalents, beginning of period

 

105,301

 

12,867

Cash and cash equivalents, end of period

$

81,911

$

30,073

Reconciliation of cash, cash equivalents, and restricted cash, beginning of period

 

  

 

  

Cash and cash equivalents

$

100,300

$

7,864

Restricted cash

 

5,001

 

5,003

Cash, cash equivalents, and restricted cash, beginning of period

$

105,301

$

12,867

Reconciliation of cash, cash equivalents, and restricted cash, end of period

 

  

 

  

Cash and cash equivalents

$

76,911

$

25,073

Restricted cash

 

5,000

 

5,000

Cash, cash equivalents, and restricted cash, end of period

$

81,911

$

30,073

Supplemental disclosure for cash flow information:

 

  

 

  

Cash paid for interest, net of amounts capitalized

$

5,637

$

1,983

Cash paid for income taxes

$

$

112

Supplemental non-cash investing and financing activities:

 

  

 

  

Debt issuance costs in accrued expenses

$

$

115

Acquisition of product rights, IPR&D, and other related assets included in returned goods reserve and derivatives and other non-current liabilities

$

$

388

Property and equipment purchased and included in accounts payable

$

253

$

218

The accompanying notes are an integral part of these condensed consolidated financial statements.

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1.

BUSINESS, PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS

Overview

ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building a successful Purified Cortrophin Gel franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities. Our four pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment.

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, comprehensive income, and cash flows. The consolidated balance sheet at December 31, 2021 has been derived from audited financial statements as of that date. The unaudited 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 U.S. Securities and Exchange Commission (the “SEC”). 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, 2021.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of ANI Pharmaceuticals, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

Foreign Currency

We have subsidiaries located in Canada and India. The Canada-based subsidiary conducts its transactions in U.S. dollars and Canadian dollars, but its functional currency is the U.S. dollar. The Indian-based subsidiary generally conducts its transactions in Indian rupees, which is also its functional currency. The results of any non-U.S. dollar transactions and balances are remeasured in U.S. dollars at the applicable exchange rates during the period and resulting foreign currency transaction gains and losses are included in the determination of net income. Our gain or loss on transactions denominated in foreign currencies and the translation impact of local currencies to U.S. dollars was immaterial for the three months ended March 31, 2022 and 2021. Unless otherwise noted, all references to “$” or “dollar” refer to the U.S. dollar.

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 condensed consolidated financial statements, estimates are used for, but not limited to,

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variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, income tax provision or benefit, deferred taxes and valuation allowance, stock-based compensation, revenue recognition, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, determination of right-of-use assets and lease liabilities, allowance for credit losses purchase price allocations, and the depreciable lives of long-lived assets. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates estimates used in the preparation of the financial statements for reasonableness.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

We have evaluated all issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our condensed consolidated statements of operations, comprehensive income, balance sheets, or cash flows.

2.

REVENUE RECOGNITION AND RELATED ALLOWANCES

Revenue Recognition

We recognize revenue using the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price, including the identification and estimation of variable consideration;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when we satisfy a performance obligation.

We derive our revenues primarily from sales of generic and branded pharmaceutical products. Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. We estimate variable consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.

All revenue recognized in the accompanying unaudited interim condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue:

Three Months Ended

Products and Services

March 31, 

March 31, 

(in thousands)

    

2022

    

2021

    

Sales of generic pharmaceutical products

$

49,107

$

32,988

Sales of established brand pharmaceutical products

 

8,452

 

7,517

Sales of rare disease pharmaceutical products

1,292

Sales of contract manufactured products

 

2,904

 

2,573

Royalties from licensing agreements

 

1,903

 

11,210

Product development services

 

566

 

158

Other

 

253

 

75

Total net revenues

$

64,477

$

54,521

Three Months Ended

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Timing of Revenue Recognition

March 31, 

March 31, 

(in thousands)

    

2022

    

2021

    

Performance obligations transferred at a point in time

$

63,911

$

54,363

Performance obligations transferred over time

 

566

 

158

Total

$

64,477

$

54,521

In the three months ended March 31, 2022 and 2021, we did not incur, and therefore did not defer, any material incremental costs to fulfill contracts. We recognized a decrease of $1.3 million to net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2022, consisting primarily of revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales. We recognized an increase of $10.7 million to net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2021, consisting primarily of a final royalty revenue related to the Kite license agreement pursuant to the Tripartite Agreement as described herein in Royalties from Licensing Agreements. We provide technical transfer services to customers, for which services are transferred over time. As of March 31, 2022 and December 31, 2021, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed. We had $0.1 million of deferred revenue at March 31, 2022 and December 31, 2021. For the three  months ended March 31, 2022, we recognized less than $0.1 million of revenue that was included in deferred revenue as of December 31, 2021. For the three months ended March 31, 2021, we recognized less than $0.1 million of revenue that was included in deferred revenue as of December 31, 2020.

Revenue from Sales of Generic and Branded Pharmaceutical Products

Product sales consists of sales of our generic and branded pharmaceutical products, including rare disease pharmaceutical products. Our sole performance obligation in our contracts is to provide pharmaceutical products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be satisfied when control of the product is transferred to the customer. Control is generally transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are generally sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment terms for these sales are generally less than 100 days.

Sales of our pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and cash discounts. Estimates for these elements of variable consideration require significant judgment.

The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the three months ended March 31, 2022 and 2021, respectively:

Accruals for Chargebacks, Returns, and Other Allowances

Administrative

Prompt

Government

Fees and Other

Payment

(in thousands)

    

Chargebacks

    

Rebates

    

Returns

    

Rebates

    

Discounts

Balance at December 31, 2020 (1)

$

88,746

$

7,826

$

27,155

$

8,906

$

3,839

Accruals/Adjustments

 

96,701

 

4,656

 

4,811

 

7,634

 

3,196

Credits Taken Against Reserve

 

(114,114)

(3,810)

 

(3,022)

 

(9,184)

 

(3,959)

Balance at March 31, 2021 (1)

$

71,333

$

8,672

$

28,944

$

7,356

$

3,076

Balance at December 31, 2021 (1)

$

94,066

$

5,492

$

35,831

$

13,100

$

4,642

Accruals/Adjustments

 

152,566

 

2,810

 

6,942

 

9,785

 

5,060

Credits Taken Against Reserve

 

(142,991)

(3,745)

 

(7,219)

 

(10,915)

 

(4,539)

Balance at March 31, 2022 (1)

$

103,641

$

4,557

$

35,554

$

11,970

$

5,163

(1)Chargebacks are included as an offset to accounts receivable in the unaudited interim condensed consolidated balance sheets. Administrative Fees and Other Rebates and Prompt Payment Discounts are included as an offset

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to accounts receivable or as accrued expenses and other in the unaudited interim condensed consolidated balance sheets. Returns are included in returned goods reserve in the unaudited interim condensed consolidated balance sheets. Government Rebates are included in accrued government rebates in the unaudited interim condensed consolidated balance sheets.

Contract Manufacturing Product Sales Revenue

Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of a third party. Our performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold at pre-determined standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our contract manufactured pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally fewer than two months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products.

As of March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $6.2 million, which consists of firm orders for contract manufactured products. We will recognize revenue for these performance obligations as they are satisfied, which is anticipated within six months.

Royalties from Licensing Agreements

From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above. From time to time, we enter into supply and distribution agreements with contract manufacturing customers, under which we license to the contract manufacturing customer the right to sell our products, and we are entitled to a royalty on sales made by the contract manufacturing customer under these arrangements. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the contract manufacturing customers.

Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr. Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we were entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc. (“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement. Under such license agreement, Kite licensed from Dr. Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®. Under the Tripartite Agreement, portions of these payments were to be distributed to The Regents and to us.

Historically, we recorded royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties. Generally, cash was received directly from Cabaret once a year. The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, ANI and Cabaret. In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed. In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement. As a result, we recognized $11.2

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million as royalties from licensing agreements in our net revenues during the three month period ended March 31, 2021. In addition, during the three month period ended March 31, 2021, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in the accompanying unaudited interim condensed consolidated statement of operations, related to certain legal expenditures incurred. We received final payment from Cabaret in May 2021. Based upon the events that led to the dismissal of the litigation between Cabaret and Kite, we do not expect to receive any future royalty income related to the Kite license agreement. In conjunction with payment of amounts due to us, all outstanding litigation between the Company and Cabaret were dismissed.

Product Development Services Revenue

We provide product development services to customers, which are performed over time. These are services primarily performed at our facilities in East Windsor, New Jersey and Oakville, Ontario. The duration of these development projects can be up to three years. Deposits received from these customers are recorded as deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our performance obligations are satisfied. We recognize revenue on a percentage of completion basis, which results in contract assets on our balance sheet. As of March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open product development services contracts was $0.1 million. We expect to satisfy these performance obligations within the next 12 months.

Credit Concentration

Our customers are primarily wholesale distributors, chain drug stores, group purchasing organizations, and pharmaceutical companies.

During the three months ended March 31, 2022 and 2021 we had three customers that accounted for 10% or more of net revenues. As of March 31, 2022, accounts receivable from these customers totaled 84% of accounts receivable, net.

The three customers represent the total percentage of net revenues as follows:

Three Months Ended

March 31, 

March 31, 

    

2022

    

    

2021

    

Customer 1

31

%

28

%

Customer 2

19

%

24

%

Customer 3

14

%

16

%

3.

BUSINESS COMBINATION

Summary

On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 8, 2021, for cash consideration, 2,466,654 restricted shares of our common stock valued at $91.2 million based on our closing stock price of $43.54 on the date of closing and discounted for lack of marketability due to restrictions on shares, and up to $46.5 million in additional contingent consideration. Additionally, we agreed to pay certain debts of Novitium in the amount of $8.5 million, which we deemed to be paid in consummation of the transaction closing, and not assumed liabilities, and thus were included as additional cash consideration. This acquisition was accounted for as a business combination. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. As of the closing of the acquisition, the contingent consideration had a fair value of $30.8 million. Total consideration including cash, restricted shares and contingent consideration was valued at $206.5 million.

Purchase consideration consisted of the following:

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(in thousands)

Cash consideration

$

88,076

Repayment of Novitium debts

 

8,493

Fair value of restricted shares

 

91,199

Fair value of contingent consideration

 

30,800

Gross consideration

$

218,568

Cash acquired

12,076

Net consideration

$

206,492

The cash consideration was funded in part by borrowings under our new credit facility (Note 4) and through issuance of shares of Series A convertible preferred stock (Note 9). We acquired Novitium due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline via niche opportunities, to enhance our contract development and manufacturing organization (“CDMO”) business and U.S. based manufacturing capacity, and to diversify our revenue base.

The preliminary allocation of the fair value of the Novitium acquisition, reflective of certain immaterial measurement period adjustments during the three months ended March 31, 2022, is shown in the table below. The allocation of the fair value will be finalized when the valuation is completed and the differences will be trued up for the final allocated amounts.

    

(in thousands)

Total Purchase Consideration

$

218,568

Cash and cash equivalents

 

12,076

Accounts receivable

 

27,185

Inventories

 

14,460

Prepaid expenses and other current assets

 

1,891

Property and equipment

 

14,331

Intangible assets

139,200

Goodwill

 

24,608

Other non-current assets

1,413

Total assets acquired

 

235,164

Accounts payable

 

1,560

Accrued expense and other current liabilities

6,035

Accrued compensation and other related expenses

4,909

Accrued government rebates

744

Returned goods reserve

2,202

Other non-current liabilities

1,146

Total liabilities assumed

 

16,596

Net assets acquired

$

218,568

The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $46.9 million of indefinite-lived in-process research and development intangible assets, $67.4 million of acquired ANDA intangible assets, and $24.9 million of customer relationship intangible assets.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill established as a result of the acquisition is tax deductible in the U.S.

Novitium operations generated $19.2 million of revenue and recorded a net loss of $0.2 million during the three months ended March 31, 2022.

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Restricted Shares

The Novitium acquisition consideration included 2,466,654 restricted shares, which were valued at $91.2 million. These shares contain restrictions on their transfer for periods from three to 24 months following the completion of the acquisition. A Finnerty model was used to value the restricted shares. It includes inputs of not readily observable market data, which are Level 3 inputs. These unobservable inputs include ANI stock volatility with a range of 65% - 71%, and the discounted lack of marketability with a range of 7.5% - 21.5% depending on the length of restriction.

4.

INDEBTEDNESS

Credit Facility

On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). 

The Term Facility proceeds were used to finance the cash portion of the consideration under the merger agreement between ANI and Novitium, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the merger. Proceeds of the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.

 

The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a)