Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. Second Quarter 2022 Earnings Results call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Lisa Wilson, Investor Relations for ANI Pharmaceuticals, Inc.
Thank you, Brittany. Welcome to ANI Pharmaceuticals Q2 2022 earnings results call. This is Lisa Wilson, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer, Steve Carey, Chief Financial Officer, and Christopher Mutz, Head of Rare Disease of ANI. You can also access the webcast of this call through the investor section of the ANI website at anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act.
These forward-looking statements are based on information available to ANI Pharmaceuticals management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. The archive webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archive webcast, this call was held and recorded on August 8th, 2022. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. With that, I'll turn the call over to Nikhil Lalwani.
Thank you, Lisa. Good morning, everyone, and thank you for joining our call. Two years ago, we began a journey to transform ANI into a leading biopharmaceutical company serving patients in need. We continue to make strong progress in this journey and believe ANI remains well-positioned to deliver sustainable long-term growth. I'm delighted to share that second quarter net revenues of $73.9 million represent a new quarterly record for ANI and an increase of 52% from a year earlier. This growth is driven both by the first full quarter sales of our lead rare disease asset, Purified Cortrophin Gel, and by growth in our generics business unit. We continue to see acceleration in the number of patients treated with Cortrophin, reflecting the value seen by all stakeholders, patients, prescribers, payers, and PBMs.
That Cortrophin is a new option in a category where patients for decades have only had one ACTH treatment available. These benefits and the hard work and dedication of our experienced rare disease team enabled us to deliver revenues of $10.2 million in the second quarter versus $1.3 million in the first quarter. In addition, our generics business unit continues to bring new products to patients and customers, and I am proud to share that ANI is now ranked sixth among all companies in terms of number of ANDA approvals received in the past 12 months. At this time, we are raising our 2022 net revenue guidance for Cortrophin to a range of $40 million-$45 million and reiterating our total company net revenue guidance at $295 million-$315 million.
Our adjusted non-GAAP EBITDA guidance remains at $54 million-$60 million. Let me now provide a few details on momentum we've built across key business lines before turning the call over to Steve to share our financial results. As most of you know, building a successful Cortrophin Gel franchise is our top priority. We are therefore very pleased to share that second quarter product sales came in at $10.2 million, up from $1.3 million in the first quarter. For those who may be new to the ANI story, Cortrophin Gel has the potential to help patients with certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis and excess urinary protein due to nephrotic syndrome. Our efforts to expand access and the number of patients benefiting from this therapeutic option are paying off.
Now, I will share more about important elements of the Cortrophin launch, which are launch trajectory, physician interest, and patient access. We are making good progress across each of these elements, and I'll tell you more about each. Since our last earnings report, new patient cases initiated have doubled. As of August 5th, approximately 500 new cases have been initiated since launch. We are also seeing meaningful improvement across conversion rates and time taken from enrollment to fulfillment. We have continued to strengthen our organizational infrastructure, including expansion of our hub, patient support services, and distribution network. Having said that, we retain our Cortrophin SG&A guidance for the year in a range of $42 million-$46 million. Our commercial execution has increased prescriber awareness. In fact, the prescriber base has doubled to more than 250 unique prescribers as of August 5th.
What is really exciting about this number is that it includes both physicians who are experienced with ACTH therapy as well as many first-time prescribers. Another positive sign is that approximately 1/3 of the prescribers have written multiple prescriptions, which continue to be distributed across our targeted specialties. Our efforts to bring savings to the healthcare system have resulted in expanded market access, with over 134 million lives with at least one indication on formulary. Notably, on July 1, Cortrophin was added to the formulary for UnitedHealthcare's commercial plans. Today, patients across commercial, Medicare, and Medicaid payers have access to Cortrophin. The most heartening impact of our launch are the stories we hear of patients who have benefited from access to Cortrophin therapy.
Overall, we are confident of the launch momentum and are raising the guidance for 2022 Cortrophin revenues to $40 million-$45 million. I'll turn next to our generics business. Sales of generic pharmaceutical products rose by 46% year-over-year in the second quarter. We remain focused on growing our new product pipeline and ensuring that we're driving cost competitiveness. During the first six months of 2022, ANI filed eight ANDAs and successfully launched multiple limited competition products. For example, we launched the second AB-rated generic for Acebutolol, Misoprostol, and Rifabutin. I am delighted to share that ANI is now ranked sixth in terms of ANDA approvals received in the past 12 months. That is quite an accomplishment. We will continue to invest R&D dollars in this critical organizational area of strength.
During the second quarter, we also announced our intention to consolidate manufacturing operations and to cease operations at the Oakville, Ontario, Canada, manufacturing plant. When we assessed the manufacturing footprint, we determined that our manufacturing sites across Baudette and New Jersey were well placed to support our future growth and continuing to serve patients and customers in need. The consolidation efforts are progressing well due to the thoughtful planning and relentless efforts of our teams across Oakville, Baudette and New Jersey. Several products have already been transferred to our site in Baudette, and other product transfers are on track for transfer to Baudette and New Jersey. We're also making progress on finding a new buyer for the Oakville facility. Once fully executed, this operational efficiency is expected to improve both profitability and cash flow by $7 million-$8 million on an annualized basis.
In parallel, we continue to invest to expand our capacity at our New Jersey manufacturing plant. Beyond manufacturing network consolidation, we are also driving and making progress on other operational efficiencies, including consolidation of our distribution operations. Business development has been a strength of our company, and we continue to be active on that front. In July, we acquired four limited competition ANDAs from Oakrum Pharma. This transaction complements efforts of our internal R&D team to expand our generics product portfolio, and we expect to launch these products and see the value unlock next year. In the established brands business unit, we are focused on efficiently increasing promotion to select high-value targets for key brands. For the dermatology products, we are partnering with an established dermatology company to grow these products.
For other key brands, we are utilizing a focused telesales team to support promotional efforts, as well as ongoing patient support through co-pay assistance and patient starter samples. In parallel, we continue to actively evaluate business development deals to expand the portfolio of established brands that we commercialize. Over the past two years, we have focused our efforts on strengthening our organization to transform ANI into a leading biopharmaceutical company serving patients in need. I am pleased to augment our leadership team and welcome Meredith Cook as Senior Vice President, General Counsel, and Corporate Secretary to ANI. Meredith brings over 20 years of legal and leadership experience in specialty and generics pharmaceuticals, including in corporate governance, mergers and acquisitions, strategic transactions, and intellectual property. Welcome again, Meredith. Steve will now walk through our detailed second quarter results. Steve?
Thank you, Nikhil, and good morning to everyone on the call. For the three months ended June 30th, 2022, we posted total net revenues of $73.9 million, up $25.2 million or 52% as compared to the prior year period, driven by revenues from the Novitium acquisition and the late January launch of Cortrophin. Net revenues for generic pharmaceutical products were $49.9 million during the three months ended June 30th, 2022, an increase of 46% compared to the $34.2 million for the same period in 2021. The net increase was primarily driven by revenues from commercial generic products acquired in our acquisition of Novitium and increased revenues of Nebivolol, which ANI launched in September 2021.
These items were partially tempered by a decrease in revenues from sales of several legacy ANI generic products. Net revenues for branded pharmaceutical products were $8.5 million during the three months ended June 30th, 2022, a decrease of 23% compared to $11 million for the same period in 2021. The net decrease was principally due to a decrease in sales of InnoPran XL and Inderal XL. Contract manufacturing revenues were $4.4 million during the three months ended June 30th, 2022, an increase of 89% compared to $2.3 million for the same period in 2021, due to an increase in the volume of orders, primarily related to the addition of Novitium contract manufacturing revenues.
Net revenues of our rare disease pharmaceutical products were $10.2 million for the quarter, consisting entirely of sales of Cortrophin Gel. There were no sales of rare disease pharmaceutical products during the comparable prior year period. Operating expenses increased by 35% to $86.8 million for the three months ended June 30th, 2022, from $64.2 million in the prior year period. Cost of sales, excluding depreciation and amortization, increased by $13 million to $35.3 million in the second quarter of 2022, compared to $22.3 million in the prior year period, driven primarily by $7.9 million in costs related to Novitium product sales and $2 million related to an increase in the sales of products subject to profit-sharing arrangements.
Excluding the impact of acquisition accounting, stock compensation, and the impact of our Canada operations, cost of sales on a non-GAAP basis as a percentage of total adjusted net revenues increased 2.4 points from 42.8% in the first quarter of 2021 to 45.2% in the current year period, primarily as a result of increased generic volumes in a period of declining average selling prices, lower sales mix of established brand products, and increased sales of products with profit-sharing arrangements. These factors were partially offset by sales of rare disease pharmaceutical products, which favorably impact our overall gross margin profile.
Research and development expenses were $4.2 million in the second quarter of 2022, an increase of $1.4 million from the prior year period, due primarily to Novitium-related activities, partially offset by a decrease in expense associated with the completion of our Cortrophin Gel development efforts. Selling, general, and administrative expenses increased to $32 million in the second quarter of 2022 or 70% compared to $18.8 million in the prior year quarter, reflecting a $12.5 million increase in sales and marketing expenses related to our launch of Cortrophin Gel, as well as increased expenses related to the addition of Novitium headcount and activities, partially tempered by a $1.6 million decrease in transaction expenses related to the Novitium acquisition.
Depreciation and amortization increased by 22% in the second quarter of 2022 to $13.8 million from $11.3 million in the comparable quarter in 2021, primarily due to the amortization of intangible assets acquired in the Novitium acquisition. We recognized restructuring activities of $2.6 million of expense in the three months ended June 30th, 2022, in relation to the previously announced closure of our Oakville, Ontario, Canada facility. Cash charges were $1.7 million, driven by $1.4 million in termination benefits, while non-cash charges totaled $0.9 million, consisting of fixed asset impairments and accelerated depreciation. We currently anticipate that we will incur another $1.4 million of severance-related cash charges and another $3.1 million-$3.6 million of accelerated depreciation over the course of the next three quarters.
We have excluded both the one-time charges resulting from this action, as well as the residual Canada results from our non-GAAP financial measures, as detailed in table three of this morning's press release. Our $0.94 GAAP net loss per share for the quarter reflects significant amortization and inventory step-up charges resulting from the Novitium acquisition, coupled with the sales and marketing expense behind our initial commercial launch of Cortrophin. On an adjusted non-GAAP basis, we had diluted earnings per share of $0.13 for the quarter compared to $0.67 per share for the prior year period. Adjusted non-GAAP EBITDA for the second quarter was $9.9 million as compared to $13.1 million for the second quarter of 2021.
During the quarter, we utilized approximately $11.5 million of cash, and as of June 30th balance sheet date, the company had $63.4 million in unrestricted cash and cash equivalents. The net use of cash in the first half of the year is in line with our expectations as we invest behind the Cortrophin launch. We anticipate a return to positive cash flows from operations during the second half of the year as Cortrophin revenues continue to increase. The company had $298.5 million of face value of outstanding debt as of June 30th, 2022. Now I will comment on forward-looking guidance for the projected 12 months ending December 31st, 2022.
Given the positive momentum behind the Cortrophin launch, we are raising our Cortrophin specific net revenue guidance to $40 million-$45 million from the previously announced range of $35 million-$40 million. We continue to forecast Cortrophin direct selling, general and administrative expenses of between $42 million and $46 million. On a total company basis, we are reiterating our previously issued guidance of net revenue between $295 million and $315 million, representing approximately 36%-46% growth as compared to $216.1 million recognized in 2021. Total company research and development expense of between $16 million and $18 million. Adjusted non-GAAP EBITDA of between $54 million and $60 million. Adjusted non-GAAP diluted earnings per share of between $1.34 and $1.62.
In addition, we currently anticipate between 16.9 million and 17 million shares outstanding and an effective tax rate of approximately 24% prior to any federal tax reform. We will now open up the call for questions. Operator, please go ahead with instructions.
At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one if you would like to ask a question. We will take our first question from Elliot Wilbur with Raymond James. Your line is now open.
Thanks. Good morning. Just wanted to ask a couple of questions on the base business, and then I had a few on Cortrophin. First, with respect to the base business, obviously the company's had a lot of top-line momentum in terms of approvals, but still a relatively mixed narrative from the industry overall, and I'm speaking specifically with respect to generics, as to the general health of that market, direction, trends in terms of price, volume. Just maybe some high-level commentary in terms of what you're seeing with respect to erosion in the base and your ability to offset that via new product launches. As a follow-up question on the base, just wanna get a little bit more insight into what is happening with respect to the branded business.
It's been, you know, a little bit light relative to external expectations last couple of quarters. Just sort of wondering if the run rate for the first six months kinda represents sort of a new normalized baseline for that business going forward.
All right. Thank you, Elliot, for your questions, and thank you for joining our call. I think the first question on the overall generics business. Look, we've seen growth in our generics business quarter-over-quarter and expect this trend to continue. As you mentioned, you know, our approach here is very straightforward, that we have launches that are coming from our R&D engine that we acquired last year, and that will outpace the erosion that we're seeing on our base or in-line products, if you will. That is playing out whether you look at it year-over-year or even quarter-over-quarter.
Having said that, your other question around pricing erosion, that's still there on the in-line products, and it is in line with what we have seen historically and being seen by our peers.
We at this point don't see that accelerating or any trigger for accelerating that. It's in line with what's been going on. Yeah. That's the first question. On the established brands, yes, we have seen a decline in a couple of our, you know, larger products on the established brands business. Having said that, as I mentioned, we are doing a number of things to address that, right? We have partnered with a dermatology company to drive promotion of our dermatology products, and we're doing, you know, targeted reach-outs to prescribers on the established brands to complement our, you know, the other elements of our commercialization strategy.
To your specific question around, you know, established brands and whether the run rate now is a new normal, I think we've not given guidance at that level. So, let us, you know, let us come back on that question.
Okay. Just a couple of quick follow-ups on the Cortrophin. Can you just talk about some or success rates that you've seen in terms of enabling patients to continue on therapy once they've received an initial prescription, just sort of the persistence rates you've seen, you know, kind of given, you know, maybe from some of the early initial patient starts. I mean, I know if you look back at the history of ACTH products, you know, I think for variety of different ailments, but, you know, you're seeing something like, you know, 7-9 vials kind of on average, you know, per patient. I'm just wondering if there's anything you could say at this point with respect to overall persistence.
Last question here is just talk about, you know, where you guys are in terms of your ultimate physician detailing strategy, whether or not all physician targets, you know, have been reached with at least an initial detail and sort of how you're thinking about, you know, how many details may be necessary before you can convert targeted physicians over to actual prescribers. Thanks.
Got it. Thank you again, Elliot, for your questions. I think the first question on success rates and persistence, look, as you know well, that the number of vials or the course of therapy varies from indication to indication. Also, the coverage varies from, you know, from patient to patient, depending what, you know, what insurance plan they're on. With these two factors in mind, as a broad trend, we are absolutely seeing that patients that start on therapy are getting the follow-on therapy that they need, and that, you know, both the coverage that is there, that is, that they have and the prescriptions that are written are ones that are just beyond just the first vial, if you will.
We are seeing the persistence and in line with what we believe is being used, you know, in what is the appropriate course of therapy. I would say that on the success rates and persistence. On the physician detailing, as you would imagine, you know, at this point, we have had an initial reach out to a majority of our physician detailing targets. You know, how much time does it take to convert them? Look, you know, the facts are straightforward, right? Since the last earnings, we've doubled the number of prescribers that have initiated new patient cases, and a third of them are writing multiple cases.
You know, there are prescribers that have never written Cortrophin, ACTH therapy before that have written. I think the physician response has been very strong.
We will take our next question from Greg Fraser with Truist Securities. Your line is now open.
Good morning, folks. Thanks for taking the questions. A couple on Cortrophin. Can you provide some specific on patient numbers, maybe the average number of patients on therapy during the quarter or how many patients are on therapy at the end of the quarter? If you could just comment on the percentage of scripts that are being written that are being filled. For those that are not filled, what are the primary reasons?
Got it. Look, thank you for your question, Greg, and thank you for joining us this morning. On the question on patients on therapy, look, we're very encouraged by the early physician demand that has resulted in doubling of new case initiations to more than 500 new case initiations for Cortrophin Gel. We've also made good progress so far by gaining formal coverage for 134 million lives. You know, our ambition to significantly expand access for patients that need Cortrophin Gel is obviously still something that we're working on. In terms of specific numbers of patients on therapy, we're currently at north of 225 patients on therapy, as it currently stands.
Just a couple follow-ups. What portion of that 134 million+ covered lives have advantage access? Do you have a target number of covered lives for which you're looking to contract for favorable access? If you could just.
Yeah.
Comment on any sort of reactionary behavior that you've seen so far from Mallinckrodt, that would be helpful. Thank you.
Yeah. No, thanks, Greg. As you will expect that, commenting on this while we're in the middle of contracting, I think we've shared a great degree of information, but in terms of targeted coverage, you know, specifics on how many we wanna be advantaged is something that we'd like to steer clear from. You know, as I said, that our ambition is to significantly expand access for patients that need Cortrophin Gel, and we've made very good progress, getting to 134 million lives. You know, I highlighted some of our recent wins or one of our recent wins in the press release. Then Greg, would you mind repeating the second question?
Yeah. I'm curious if you've seen some reactionary behavior?
Oh, yeah.
from Mallinckrodt.
Yeah. Look, we're tracking what Mallinckrodt is doing, you know, and the changes that have happened at the company and, you know, and any resulting changes. More than that, we're importantly focused on what we need to do to achieve our purpose of providing another choice in ACTH therapy to our patients. As mentioned before, a claims-based epidemiology analysis suggests less than 10% of patients who are steroid resistant and refractory across primary indications actually receive ACTH therapy. This is the unmet need that we're focused on.
Got it. Thanks so much.
Thank you, Greg.
Once again, that is star and one if you would like to ask a question. We'll take our next question from Brandon Folkes with Cantor Fitzgerald. Your line is open.
Hi. Thanks for taking the questions and congratulations on the results. Maybe just two on Cortrophin. Any additional color on the split of ACTH experienced prescribers versus first-time prescribers? The guidance raise, can you just help us think about how we should sort of think about the moving parts there? Do you expect to increase the pace of new patient starts in the back half of the year with the guidance raise driven by the better coverage that you have coming online there? I'll just ask my other one. Just in terms of business development going forward, do you look to bring in additional rare disease assets or continue to bring in generic assets? Just longer term, should we think of ANI sort of growing its generics business as the primary driver or maybe bringing in additional specialty assets?
Thank you.
Yeah. Thank you, Brandon, for joining the call and thank you for your question. In terms of the split between experienced prescribers versus new prescribers, we're not sharing those details at this time. As you can imagine, there's a competitive context here that drives what we can share or not share on these calls, and I appreciate your understanding there. Regarding your second question on the guidance and, you know, and the raise on the Cortrophin guidance. Look, we absolutely see an increase in the number of patients that will get on therapy and acceleration there. That does inform the guidance range of, you know, and the momentum that we believe drives our guidance increase. Yeah. It's both.
You know, it is the increase in the number of patients that will get on therapy as we go forward, and that is driven by both factors, right? Increase in the number of new enrollments, new patient cases initiated. As I just said, we've doubled the number of new patient cases initiated since the last earnings. We expect that momentum to continue as well as, you know, getting those patients on therapy. Then your third question on business development. Look, the rare disease business unit is one that we have invested in heavily and one that we will absolutely bring additional assets in to expand and use the rare disease platform that we have. Of course, at this time, we're focused on executing on the Purified Cortrophin Gel launch.
There are many other elements of the Cortrophin Gel launch that will unravel as we move forward. But, you know, in terms of how you think about business development and where ANI will be focused, I think that, you know, rare disease is an area that will absolutely get allocation of capital and bringing additional assets in to, you know, to drive that platform and drive it forward. As far as the generics business goes, look, we have a rock solid, high performing R&D engine, and that will be the source of organic growth as we look at, you know, potentially look at other dosage forms. You know, that's where the business development will be targeted there.
Of course, the Oakrum Pharma-type acquisitions are, you know, opportunistic, where we get a chance to expand our portfolio.
Great. Thanks for taking my questions.
Thank you, Brandon.
We do have a follow-up question from Elliot Wilbur with Raymond James. Your line is now open.
Thanks. Just real quickly on pipeline, specifically thinking about generic business. Nikhil, I don't know if you have the numbers in front of you or not but just wondering where things stand in terms of number of ANDAs currently pending at FDA. Also, I think there's been a settlement reached in your Paragraph IV filing on [treprostinil] . Just wondering if there's anything you can say about that in terms of when you may be able to monetize that opportunity. I think as part of the Novitium acquisition, you also picked up a couple of 505(b)(2) assets. Just wondering what developments have occurred since the acquisition, if there's anything more you can say about the timeline associated with those. Thanks.
Yeah. Thank you, Elliot, for your question. On the multiple 505(b)(2) assets that we had, it's not just two. They're progressing well. We have, you know, made significant progress on the launch of one of them. You know, we'll share more details in future calls, but I think the, you know, the idea of looking at 505(b)(2)s and using the Novitium R&D engine to drive that forward is something that we are committed to and will take forward. That's on the 505(b)(2)s. The Trokendi settlement is not one that we can share more on than what's in the public domain, so I think I'll just steer clear of that.
Your third question, which is the number of ANDAs pending at the FDA. I have a number of the total ANDAs, so allow me to come back to you in terms of the total number of ANDAs. But it's, you know, that are pending. It's, I think, close to 30 that are pending at the FDA. But obviously, as you well know, Elliot, this is something that we keep adding to the pipeline. We have a, you know, a high-performing R&D engine, you know, ranked number 6 in terms of the number of ANDA approvals received in the past 12 months. You know, it's something that we keep adding to the pipeline, as you will imagine.
It appears we have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.
Yes, thank you very much for turning the call back. Thank you everyone for joining our call this morning. We've made excellent progress to date and remain committed to capturing the full potential of our lead rare disease product, Cortrophin Gel, all while advancing our active R&D engine to continue delivering high quality medicines to patients in need. As always, we appreciate the support of our shareholders and look forward to sharing our future progress. Thanks again and stay well.
This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.