Annual Statements Open main menu

ANI PHARMACEUTICALS INC - Quarter Report: 2022 March (Form 10-Q)

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

3

Table of Contents

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.

4

Table of Contents

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.

5

Table of Contents

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.

6

Table of Contents

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.

7

Table of Contents

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.

8

Table of Contents

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.

9

Table of Contents

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,

10

Table of Contents

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

11

Table of Contents

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

12

Table of Contents

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

13

Table of Contents

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:

14

Table of Contents

    

(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.

15

Table of Contents

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) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement) in the case of LIBOR loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility. The interest rate under the Term Facility was 6.75% at March 31, 2022. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the twelve months ended March 31, 2023. As of March 31, 2022, $3.0 million of the loan is recorded as current borrowings in the unaudited interim condensed consolidated balance sheets. As of March 31, 2022, we have not drawn on the Revolving Facility and $40.0 million remained available for borrowing.

We incurred $14.0 million in deferred debt issuance costs associated with the Credit Facility. Costs allocated to the Term Facility are classified as a direct reduction to the current and non-current portion of the borrowings, depending on their nature. Costs allocated to the Revolving Facility are classified as other current and other non-current assets, depending on their nature. We incur a commitment fee of 0.5% per annum on any unused portion of the Revolving Facility.

  

In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders.

The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future domestic subsidiary guarantors’ assets. The Credit Facility is subject to customary financial and nonfinancial covenants.

16

Table of Contents

The carrying value of the current and non-current components of the Term Facility as of March 31, 2022 and December 31, 2021 are:

Current

March 31, 

December 31, 

(in thousands)

    

2022

    

2021

Current borrowing on debt

$

3,000

    

$

3,000

Deferred financing costs

 

(2,150)

 

(2,150)

Current debt, net of deferred financing costs

$

850

$

850

Non-Current

March 31, 

December 31, 

(in thousands)

    

2022

    

2021

Non-current borrowing on debt

$

296,250

$

297,000

Deferred financing costs

 

(9,943)

 

(10,480)

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

$

286,307

$

286,520

As of March 31, 2022, we had a $299.3 million balance on the Term Facility. Of the $1.0 million of deferred debt issuance costs allocated to the Revolving Facility, $0.8 million is included in other non-current assets in the unaudited interim condensed consolidated balance sheets, and $0.2 million is included in prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.

The contractual maturity of our Term Facility is as follows for the years ending December 31:

(in thousands)

    

Term Facility

2022

$

2,250

2023

 

3,000

2024

 

3,000

2025

 

3,000

2026

3,000

2027 and thereafter

285,000

Total

$

299,250

The following table sets forth the components of total interest expense related to the Term Facility during the three months ended March 21, 2022 and interest expense under the Prior Credit Agreement during the three months ended March 31, 2021, as recognized in the accompanying unaudited interim condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31, 

March 31, 

(in thousands)

    

2022

    

2021

    

Contractual coupon

$

6,058

$

2,304

Amortization of finance fees

 

591

 

177

Capitalized interest

 

(30)

 

(26)

$

6,619

$

2,455

5.

DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

At times we use derivative financial instruments to hedge our exposure to interest rate risks. All derivative financial instruments are recognized as either assets or liabilities at fair value on the consolidated balance sheet and are classified as current or non-current based on the scheduled maturity of the instrument.

17

Table of Contents

When we enter into a hedge arrangement and intend to apply hedge accounting, we formally document the hedge relationship and designate the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. When we determine that a derivative financial instrument qualifies as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive loss, net of tax in our consolidated balance sheets and will be reclassified to earnings when the hedged item affects earnings.

In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Agreement with Truist Bank, the interest rate swap with a notional value of $168.6 million was novated and Truist Bank is the new counterparty. The swap is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. As of March 31, 2022, the notional amount of the interest rate swap was $162.2 million and decreases quarterly by approximately $4.0 million until December 2023, after which it remains static until maturity in December 2026. As of March 31, 2022, the fair value of the interest rate swap asset recorded in derivatives and other non-current assets in the unaudited interim condensed consolidated balance sheets was $0.4 million. As of March 31, 2022, $2.7 million was recorded in accumulated other comprehensive loss, net of tax in the unaudited interim condensed consolidated balance sheets.

During the three months ended March 31, 2022, the change in fair value of the interest rate swaps was a gain of $6.9 million. During the three months ended March 31, 2022, gains on the interest rate swap of $5.8 million were recorded in accumulated other comprehensive loss, net of tax in our unaudited interim condensed consolidated statements of comprehensive (loss)/income. Differences between the hedged LIBOR rate and the fixed rate are recorded as interest expense in the same period that the related interest is recorded for the Term Facility based on the LIBOR rate. In the three months ended March 31, 2022, $1.0 million of interest expense was recognized in relation to the interest rate swaps. Included in this amount for the three months ended March 31, 2022 and 2021 are reclassifications out of accumulated other comprehensive income/loss of $0.7 million and $0.9 million in expense, respectively, related to terminated and de-designated cash flow hedges.

6.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”), unvested restricted stock awards, and stock purchase warrants, using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share.

Our unvested restricted shares and Series A convertible preferred stock shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net loss) attributable to the unvested restricted shares and the common shares assumed converted from the preferred shares and excludes the impact of those shares from the denominator.

18

Table of Contents

Earnings (loss) per share for the three months ended March 31, 2022 and 2021 are calculated for basic and diluted earnings (loss) per share as follows:

Basic

Diluted

(in thousands, except per share amounts)

Three Months Ended March 31, 

Three Months Ended March 31, 

  

2022

  

2021

  

2022

  

2021

  

Net (loss)/income

$

(20,130)

$

86

$

(20,130)

$

86

Net income allocated to participating securities

 

 

(5)

 

 

(5)

Dividends on Series A convertible preferred stock

(405)

(405)

Net (loss)/income available to common shareholders

$

(20,535)

$

81

$

(20,535)

$

81

Basic Weighted-Average Shares Outstanding

 

16,137

 

12,004

 

16,137

 

12,004

Dilutive effect of stock options and ESPP

 

 

13

Diluted Weighted-Average Shares Outstanding

 

16,137

 

12,017

(Loss)/Income per share

$

(1.27)

$

0.01

$

(1.27)

$

0.01

The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, was 2.5 million and 1.7 million for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because we recognized a net loss. For the three months ended March 31, 2021, anti-dilutive shares consist of out-of-the-money Class C Special stock, out-of-the-money common stock options, and unvested restricted stock awards and common stock options that are anti-dilutive when calculating the impact of the potential dilutive common shares using the two-class or treasury stock method.

7.

INVENTORIES

Inventories consist of the following as of:

March 31, 

December 31, 

(in thousands)

    

2022

    

2021

 

Raw materials

$

52,816

$

51,350

Packaging materials

 

5,560

 

5,475

Work-in-progress

 

615

 

652

Finished goods

 

31,363

 

31,969

 

90,354

 

89,446

Reserve for excess/obsolete inventories

 

(7,199)

 

(7,753)

Inventories, net

$

83,155

$

81,693

19

Table of Contents

Vendor Concentration

We source the raw materials for our products, including active pharmaceutical ingredients (“API”), from both domestic and international suppliers. Generally, only a single source of API is qualified for use in each product due to the cost and time required to validate a second source of supply. As a result, we are dependent upon our current vendors to reliably supply the API required for on-going product manufacturing. During the three months ended March 31, 2022, one vendor represented 16% of inventory purchases. As of March 31, 2022, our accounts payable to this supplier was zero. During the three months ended March 31, 2021, we purchased approximately 11% of our inventory from one supplier.

8.

GOODWILL AND INTANGIBLE ASSETS

Goodwill

As a result of our 2013 merger with BioSante Pharmaceuticals, Inc. (“BioSante”), we recorded goodwill of $1.8 million. As a result of our acquisition of WellSpring Pharma Services Inc., we recorded additional goodwill of $1.7 million in 2018. From our acquisition of Novitium in 2021, we recorded goodwill of $24.6 million. We assess the recoverability of the carrying value of goodwill as of October 31st of each year, and whenever events occur or circumstances change that would, more likely than not, reduce the fair value of our reporting unit below its carrying value. There have been no events or changes in circumstances that would have reduced the fair value of our reporting unit below its carrying value during the three months ended March 31, 2022. No impairment losses were recognized during the three months ended March 31, 2022 and 2021.

Intangible Assets

The components of net definite-lived intangible assets and net indefinite-lived intangible assets other than goodwill are as follows:

March 31, 2022

December 31, 2021

Weighted Average

Gross Carrying  

Accumulated

Gross Carrying

Accumulated

Amortization

(in thousands)

  

Amount

  

Amortization

  

Amount

  

Amortization

  

Period

Definite-Lived Intangible Assets:

Acquired ANDA intangible assets

$

168,536

$

(59,127)

$

168,536

$

(54,079)

 

8.5

years

NDAs and product rights

 

242,372

 

(145,184)

 

242,372

 

(138,835)

 

9.9

years

Marketing and distribution rights

 

17,157

 

(12,588)

 

17,157

 

(12,347)

 

5.5

years

Non-compete agreement

 

624

 

(535)

 

624

 

(513)

 

7.0

years

Customer relationships

24,900

(1,482)

24,900

(593)

7.0

years

Indefinite-Lived Intangible Assets:

In process research and development

46,900

46,900

Indefinite

Total Intangible Assets, net

$

500,489

$

(218,916)

$

500,489

$

(206,367)

9.0

years

The definite-lived Abbreviated New Drug Applications (“ANDAs”), New Drug Applications (“NDAs”) and product rights, marketing and distribution rights, customer relationships, and non-compete agreement are stated at cost, net of amortization, and generally amortized over their remaining estimated useful lives, ranging from seven to 10 years, based on the straight-line method. In the case of certain NDA and product rights assets, we use an accelerated amortization method to better match the anticipated economic benefits expected to be provided. Our indefinite-lived intangible assets other than goodwill include in-process research and development (“IPR&D”) projects. IPR&D intangible assets represent the fair value of technology acquired in a business combination for which the technology projects are incomplete but have substance. When an IPR&D project is completed (generally upon receipt of regulatory approval), the asset is then accounted for as a definite-lived intangible asset.

Amortization expense was $12.5 million and $9.7 million for the three months ended March 31, 2022 and 2021, respectively. Refer to Note 13 for more details on acquired definite-lived intangible assets.

20

Table of Contents

We test for impairment of definite-lived intangible assets and indefinite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable. No such triggering events were identified during the three months ended March 31, 2022 and 2021 and therefore no impairment loss was recognized in the three months ended March 31, 2022 and 2021.

Expected future amortization expense is as follows:

(in thousands)

    

2022 (remainder of the year)

$

36,572

2023

 

50,792

2024

 

49,997

2025

 

47,893

2026

 

34,574

2027 and thereafter

 

61,745

Total

$

281,573

9.

MEZZANINE AND STOCKHOLDERS’ EQUITY

Stockholders’ Equity

Authorized shares

We are authorized to issue up to 33.3 million shares of common stock with a par value of $0.0001 per share, 0.8 million shares of class C special stock with a par value of $0.0001 per share, and 1.7 million shares of undesignated preferred stock with a par value of $0.0001 per share at March 31, 2022.

There were 17.4 million and 17.3 million shares of common stock issued and outstanding as of March 31, 2022 and 16.9 million shares of common stock issued and outstanding as of December 31, 2021. During 2021, we issued 1.5 million shares related to a public offering of our common stock and 2.5 million shares as consideration in connection with the acquisition of Novitium.

There were 11 thousand shares of class C special stock issued and outstanding as of March 31, 2022 and December 31, 2021. Each share of class C special stock entitles its holder to one vote per share. Each share of class C special stock is exchangeable, at the option of the holder, for one share of our common stock, at an exchange price of $90.00 per share, subject to adjustment upon certain capitalization events. Holders of class C special stock are not entitled to receive dividends or to participate in the distribution of our assets if we were to liquidate, dissolve, or wind-up the company. The holders of class C special stock have no cumulative voting, preemptive, subscription, redemption, or sinking fund rights.

Mezzanine Equity

PIPE Shares

Concurrently with the execution of the Merger Agreement, and as financing for a portion of the acquisition, on March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand (the “PIPE Investor”), pursuant to which we agreed to issue and sell to the PIPE Investor, and the PIPE Investor agreed to purchase, 25,000 shares of our Series A Convertible Preferred Stock (the “PIPE Shares”), for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 million PIPE Investment. This agreement closed and the 25,000 PIPE Shares were sold and issued for $25.0 million on November 19, 2021. The PIPE Shares are classified as mezzanine equity because the shares are mandatorily redeemable for cash upon a change in control, an event that is not solely in our control. We incurred $0.2 million in issuance costs associated with the transaction.

The PIPE Shares accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind, and will also participate, on a pro-rata basis, in any dividends that may be declared with respect to our common stock. The PIPE

21

Table of Contents

Shares are convertible into our common shares at the conversion price of $41.47 (i) beginning two years after their issuance date, at the election of ANI (in which case the PIPE Investor must convert all of the PIPE Shares), if the volume-weighted average price of our common stock for any 20 trading days out of 30 consecutive trading days exceeds 170% of the conversion price, and (ii) at any time after issuance, at the election of the PIPE Investor. As of March 31, 2022, the PIPE shares are currently convertible into a maximum of 602,901 shares of our common stock.

In case of a liquidation event, the holder of the PIPE Shares will be entitled to receive, in preference to holders of our common stock, the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the amount the holder of the PIPE Shares would have received in the liquidation event if it had converted its PIPE Shares into our common stock. The PIPE Shares will have voting rights, voting as one series with our common stock, on as-converted basis, and will have separate voting rights on any (i) amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate”) that adversely amends and relates solely to the terms of the PIPE Shares and (ii) issuance of additional Series A convertible preferred stock. In case of a change of control of ANI, the PIPE Shares will be redeemed at the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the change of control transaction consideration that the holder of the PIPE Shares would have received if it had converted into our common stock.

There were 25,000 shares of Series A convertible preferred stock outstanding as of March 31, 2022.

10.

STOCK-BASED COMPENSATION

Employee Stock Purchase Plan

In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan. As of March 31, 2022, we had 0.2 million shares of common stock available under the ESPP. Under the ESPP, participants can purchase shares of our stock at a 15% discount.

The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our accompanying unaudited interim condensed consolidated statements of operations:

(in thousands)

Three Months Ended March 31, 

    

2022

    

2021

    

Cost of sales

$

10

$

4

Research and development

 

7

 

5

Selling, general, and administrative

 

21

 

23

$

38

$

32

Stock Incentive Plan

Equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2022 Stock Incentive Plan (the “2022 Plan”), which was approved by our stockholders at the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) held on April 27, 2022. Prior to this approval, we had been granting equity-based incentive awards under our Sixth Amended and Restated 2008 Stock Incentive Plan (the “the Existing Plan”). As of March 31, 2022, 0.1 million shares of our common stock were available for issuance under the Existing Plan. The approved 2022 Plan was amended to, among other things, increase the number of shares reserved for issuance thereunder by 1,150,000 shares.

From time to time, we may grant stock options to employees through an inducement grant outside of our 2022 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”). The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant

22

Table of Contents

date. The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

The following table summarizes stock-based compensation expense incurred under the 2022 Plan and Inducement Grants included in our accompanying unaudited interim condensed consolidated statements of operations:

(in thousands)

Three Months Ended March 31, 

    

2022

    

2021

    

Cost of sales

$

135

$

Research and development

 

246

 

114

Selling, general, and administrative

 

2,818

 

1,723

$

3,199

$

1,837

A summary of stock option and restricted stock activity under the 2022 Plan and Inducement Grants during the three months ended March 31, 2022 and 2021 is presented below:

(in thousands)

Options

Inducement Grants

RSAs

Outstanding at December 31, 2020

 

756

180

352

Granted

 

42

61

438

Options Exercised/RSAs Vested

 

(34)

 (1)

Forfeited

 

(10)

(38)

Expired

 

Outstanding at March 31, 2021

 

788

241

718

Outstanding at December 31, 2021

 

747

241

707

Granted

 

27

460

Options Exercised/RSAs Vested

 

(161)

 (2)

Forfeited

 

Expired

 

Outstanding at March 31, 2022

 

774

241

1,006

(1)Includes 10 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $348 thousand total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.
(2)Includes 40 thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $1.1 million total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.

11.

INCOME TAXES

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of March 31, 2022, we have provided a valuation allowance against consolidated net deferred tax assets of $0.4 million, related solely to deferred tax assets for net operating loss carryforwards in certain U.S. state jurisdictions.

23

Table of Contents

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We have not identified any uncertain income tax positions that could have a material impact on the consolidated financial statements. We recognize interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense; we did not have any such amounts accrued as of March 31, 2022 and December 31, 2021. We are subject to taxation in various U.S. jurisdictions and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.

For interim periods, we recognize an income tax provision/(benefit) based on our estimated annual effective tax rate, calculated on a worldwide consolidated basis, expected for the entire year. The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for estimated changes in temporary and estimated permanent differences, and excludes certain discrete items whose tax effect, when material, is recognized in the interim period in which they occur. These changes in temporary differences, permanent differences, and discrete items result in variances to the effective tax rate from period to period. We also have elected to exclude the impacts from significant pre-tax non-recognized subsequent events from our interim estimated annual effective rate until the period in which they occur. Our estimated annual effective tax rate changes throughout the year as our on-going estimates of pre-tax income, changes in temporary differences, and permanent differences are revised, and as discrete items occur. Global Intangible Low-Taxed Income (“GILTI”), as defined in the Tax Cuts and Jobs Act of 2017, generated from our Canadian and Indian operations is subject to U.S. taxes, with certain defined exemptions, thresholds and credits. For financial reporting purposes we have elected to treat GILTI inclusions as a period cost.

For the three months ended March 31, 2022, we recognized an income tax benefit of $5.8 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax benefit rate of 22.3% to pre-tax consolidated loss of $25.9 million reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended March 31, 2022.

For the three months ended March 31, 2021, we recognized an income tax benefit of less than $0.1 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax benefit rate of 27.7% to pre-tax consolidated income of $0.1 million reported during the period, reduced by the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended March 31, 2021.

12.

COMMITMENTS AND CONTINGENCIES

Operating Leases

All our existing leases as of March 31, 2022 are classified as operating leases. As of March 31, 2022, we have twelve material operating leases for facilities and office equipment with remaining terms expiring from 2022 through 2026 and a weighted average remaining lease term of 2.9 years. Many of our existing leases have fair value renewal options, none of which are considered certain of being exercised or included in the minimum lease term. Discount rates used in the calculation of our lease liability ranged between 3.99% and 8.95%. Current lease liability is included in accrued expenses and other in the accompanying unaudited interim condensed consolidated balance sheets. Non-current lease liability is included in derivatives and other non-current liabilities in the accompanying unaudited interim condensed consolidated balance sheets.

24

Table of Contents

Rent expense for the three months ended March 31, 2022 and 2021 consisted of the following:

    

Three Months Ended March 31, 

    

(in thousands)

    

2022

    

2021

    

Operating lease costs

$

126

$

49

Variable lease costs

 

66

 

7

Total lease costs

$

192

$

56

A maturity analysis of our operating leases follows:

(in thousands)

    

Future payments:

2022

$

344

2023

 

428

2024

 

412

2025

 

190

2026 and thereafter

 

51

Total

$

1,425

Discount

(143)

Lease liability

1,282

Current lease liability

(380)

Non-current lease liability

$

902

Government Regulation

Our products and facilities are subject to regulation by a number of federal and state governmental agencies, such as the Drug Enforcement Administration (“DEA”), the Food and Drug Administration (“FDA”), the Centers for Medicare and Medicaid Services (“CMS”), Health Canada, the Central Drugs Standard Control Organization (“CDSCO”), The Narcotics Control Bureau (“NCB”), and India’s Ministry of Health and Family Welfare (“MoHFW”). The FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products. The DEA, Health Canada, and NCB maintain oversight over our products that are considered controlled substances.

Unapproved Products

Two of our products, Esterified Estrogen with Methyltestosterone (“EEMT”) and Opium Tincture, are marketed without approved NDAs or ANDAs. During the three months ended March 31, 2022 and 2021, net revenues for these products totaled $4.0 million and $3.8 million, respectively.

In addition, one group of products that we manufacture on behalf of a contract customer is marketed by that customer without an approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market. Our contract manufacturing revenues for the group of unapproved products for the three months ended March 31, 2022 and 2021 were $0.6 million and $0.8 million, respectively.

Legal proceedings

We are involved, and from time to time may become involved, in various disputes, governmental and/or regulatory inquiries, investigations, government reimbursement related actions and litigation. These matters are complex and subject to significant uncertainties. As such, we cannot accurately predict the outcome, or the effects of the legal proceedings described below. While we believe that we have valid claims and/or defenses in the litigation and other matters described below, litigation is inherently unpredictable, and the outcome of the proceedings could result in losses, including substantial damages, fines, civil or criminal penalties and injunctive or administrative remedies.

25

Table of Contents

We intend to vigorously prosecute and/or defend these matters, as appropriate, however, from time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in our best interests. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material adverse effect on our results of operations and/or cash flows in any given accounting period or on our overall financial condition.

Some of these matters with which we are involved are described below, and unless otherwise disclosed, we are unable to predict the outcome of the matter or to provide an estimate of the range of reasonably possible material losses. We record accruals for loss contingencies to the extent we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

From time to time, we are also involved in other pending proceedings for which, in our opinion based upon facts and circumstances known at the time, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to our results, and therefore remain undisclosed. If and when any reasonably possible losses associated with the resolution of such other pending proceedings, in our opinion, become material, we will disclose such matters.

Furthermore, like all pharmaceutical manufacturers, we are periodically exposed to product liability claims. The prevalence of these claims could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business, financial condition, and operating results. Recent trends in the product liability and director and officer insurance markets is to exclude matters related to certain classes of drugs. Our policies have been subject to such exclusions which place further potential risk of financial loss on us.

Legal fees for litigation-related matters are expensed as incurred and included in the consolidated statements of operations under the selling, general, and administrative expense line item.

Commercial Litigation

In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court for the District of Minnesota. The complaint alleged false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code, and Minnesota State law, under the premise that we sold an unapproved Erythromycin Ethylsuccinate (“EES”) product during the period between September 27, 2016 and November 2, 2018. The complaint sought a trial by jury and monetary damages (inclusive of actual and consequential damages, treble damages, disgorgement of ANI profits, and legal fees) of an unspecified amount. Discovery in this action closed on March 31, 2019 and trial was scheduled to commence on August 25, 2021. On August 3, 2021, the Company entered into a Settlement Agreement with Arbor Pharmaceuticals, LLC to resolve all claims related to Civil Action 17-4910, Arbor Pharmaceuticals, LLC (“Arbor”) v. ANI Pharmaceuticals, Inc., which was pending trial in the United States District Court for the District of Minnesota. Under the terms of the agreement, ANI paid Arbor $8.4 million and Arbor dismissed the action with prejudice. Neither party admitted wrongdoing in reaching this settlement. The Company paid the settlement from cash on the balance sheet.

On December 3, 2020, class action complaints were filed against the Company on behalf of putative classes of direct and indirect purchasers of the drug Bystolic. On December 23, 2020, six individual purchasers of Bystolic, CVS, Rite Aid, Walgreen, Kroger, Albertsons, and H-E-B, filed complaints against the Company. On March 15, 2021, the plaintiffs in these actions filed amended complaints. All amended complaints are substantively identical.  The plaintiffs in these actions allege that, beginning in 2012, Forest Laboratories, the manufacturer of Bystolic, entered into anticompetitive agreements when settling patent litigation related to Bystolic with seven potential manufacturers of a generic version of Bystolic: Hetero, Torrent, Alkem/Indchemie, Glenmark, Amerigen, Watson, and various of their corporate parents, successors, subsidiaries, and affiliates.  ANI itself was not a party to patent litigation with Forest concerning Bystolic and did not settle patent litigation with Forest. The plaintiffs named the Company as a defendant based on the Company’s January 8, 2020 Asset Purchase Agreement with Amerigen. The complaints alleged that the 2013 patent litigation settlement agreement between Forest and Amerigen violated federal and state antitrust laws and state consumer protection laws by delaying the market entry

26

Table of Contents

of generic versions of Bystolic. Plaintiffs alleged they paid higher prices as a result of delayed generic competition. Plaintiffs sought damages, trebled or otherwise multiplied under applicable law, injunctive relief, litigation costs and attorneys’ fees. The complaints did not specify the amount of damages sought from the Company or other defendants and the Company at this early stage of the litigation cannot reasonably estimate the potential damages that the plaintiffs will seek. The cases have been consolidated in the United States District Court for the Southern District of New York as In re Bystolic Antitrust Litigation, Case No. 20-cv-005735 (LJL).  On April 23, 2021, the Company and other defendants filed motions to dismiss the amended complaints. On January 24, 2022, the court dismissed all claims brought by the plaintiffs without prejudice. The court granted the plaintiffs until February 22, 2022 to file amended complaints, which were filed on that date. The newly amended complaints contain substantially similar claims. On April 19, 2022, the Company and other defendants filed motions to dismiss the newly amended complaints. The Company disputes any liability in these matters.

On March 24, 2021, Azurity Pharmaceuticals, Inc. (“Azurity”) filed a complaint in the United States District Court for the District of Minnesota against ANI Pharmaceuticals, Inc., asserting that ANI’s vancomycin hydrochloride oral solution drug product infringes U.S. Patent No. 10,688,046. The complaint sought injunctive relief, damages, including lost profits and/or royalty, treble damages, and attorneys’ fee and costs. On February 15, 2022, the Company entered into a settlement agreement with Azurity to resolve all claims related to this action. Under the terms of the agreement, Azurity granted ANI a non-exclusive, non-transferable, non-sublicensable, royalty-bearing license under its Patents to sell ANI product in the United States and dismissed the action with prejudice. In exchange, we paid Azurity $1.9 million of royalties from past sales and we will pay Azurity a royalty equal to 20% of gross margin of sales of the ANI product for a contractually defined term. We paid the settlement from cash on hand and the $1.9 million charge was recorded as cost of sales (excluding depreciation and amortization) on the consolidated statement of operations for the year ended December 31, 2021.

On April 1, 2021, United Therapeutics Corp. and Supernus Pharmaceuticals, Inc. (“UTC/Supernus”) filed a complaint in the United States District Court for the District of Delaware against ANI Pharmaceuticals, Inc., asserting that ANI's proposed Treprostinil extended release drug product, which is subject to ANI’s Abbreviated New Drug Application No. 215667, infringes U.S. Patent Nos. 7,417,070, 7,544,713, 8,252,839, 8,349,892, 8,410,169, 8,747,897, 9,050,311, 9,278,901, 9,393,203, 9,422,223, 9,593,066 and 9,604,901 (“the Asserted Patents”). The complaint seeks injunctive relief, attorneys' fee and costs. ANI filed its answer and counterclaims on May 28, 2021, denying UTC/Supernus’ allegations and seeking declaratory judgment that ANI has not infringed any valid and enforceable claim of the Asserted Patents, that the Asserted Patents are invalid, and an award of attorneys’ fees and costs. Trial is set for May 8, 2023.

Industry Related Litigation

In July 2020, ANI and Novitium were served with a complaint brought by the Office of the Attorney General of the State of New Mexico against manufacturers and sellers of ranitidine products. The complaint asserts a public nuisance claim and a negligence claim against the generic ranitidine manufacturer defendants, including ANI and Novitium. The public nuisance claim asserts that the widespread sale of ranitidine products in the state created a public nuisance that requires a state-wide medical monitoring program of New Mexico residents for the development of colorectal cancer, stomach cancer, gastrointestinal disorders and liver disease. As damages, New Mexico asks that the defendants fund this medical monitoring program. The negligence claims assert that the defendants were negligent in selling the product, essentially alleging that it was unreasonable to have the product on the market. With respect to that claim, New Mexico asserts that it paid for ranitidine products through state-funded insurance and health-care programs. On December 15, 2020, the case was removed to federal court and transferred to the In re Zantac multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida. New Mexico moved for remand to state court. The MDL court granted the remand motion on February 25, 2021. On April 16, 2021, New Mexico filed an amended complaint in the New Mexico First Judicial District Court in Santa Fe County. It did not name ANI in the amended complaint, effectively voluntarily dismissing ANI from the action. Novitium is named as a Defendant in the amended complaint. According to Novitium’s records, Novitium sold approximately 42 bottles of ranitidine indirectly into New Mexico, and received no funds from any state funded health care plan or Medicaid. The Defendants filed a motion to dismiss the claims asserted in the New Mexico litigation based primarily on preemption. The motion was denied in August 2021.

27

Table of Contents

In December 2020, the City of Baltimore served ANI and Novitium with a complaint against manufacturers and sellers of ranitidine products. The City of Baltimore complaint tracks the allegations of the New Mexico complaint. The Baltimore action was removed to federal court and transferred to the In re Zantac MDL on February 1, 2021. The City of Baltimore moved for remand, which was granted on April 1, 2021. The parties stipulated to allow the City of Baltimore to file an amended complaint in the Circuit Court of Maryland for Baltimore City in “due course,” without a specific filing deadline. On June 23, 2021, the City of Baltimore filed an amended complaint. The City of Baltimore did not name ANI in its amended complaint, effectively voluntarily dismissing ANI from the action. Novitium was named as a defendant in the amended complaint. Defendants in the Baltimore action filed a motion to dismiss on based primarily on preemption to which Novitium joined. The motion was granted as to all generic manufacturer defendants on January 28, 2022, and all claims against Novitium were dismissed with prejudice. The deadline for the City to file an appeal was February 28, 2022.

ANI and Novitium dispute any liability in these matters.

Product Liability Related Litigation

All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the FDA’s February 2009 Black Box warning requirement (“legacy claims”). All these original legacy claims were settled or closed out, including a series of claims in California that were resolved by coordinated proceeding and settlement. Our insurance company assumed the defense of the legacy claims and paid all losses in settlement of the California legacy claims. In March 2019, we were served with a lawsuit in the Superior Court of California, County of Riverside, adding us as a defendant in a complaint filed in July 2017 that is alleged not to have been part of the original settled legacy claims. This new claim was dismissed with prejudice in July 2021 and the matter is now closed.

In June 2020, ANI was served with a personal injury complaint in the case of Koepsel v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-80882-RLR, filed in the United States District Court for Southern District of Florida, in which the plaintiff alleges that he developed kidney cancer in 2018 as a result of taking over the counter medication containing ranitidine. The Koepsel action was filed within an existing multidistrict litigation concerning ranitidine-containing drugs pending in the Southern District of Florida before Judge Robin L. Rosenberg, In re Zantac MDL, 20 MDL 2924. A Master Personal Injury Complaint (“MPIC”) in that MDL that was filed on June 22, 2020 also named ANI and Novitium as defendants. ANI was dismissed from the Koepsel case on August 21, 2020 and was dismissed from the MPIC on September 8, 2020. On December 31, 2020, after ANI was dismissed, the district court dismissed the MPIC claims against generic manufacturer defendants partially with prejudice and partially with leave to replead. The failure to warn and design defect claims were dismissed with prejudice on preemption grounds. An Amended Master Personal Injury Complaint was filed on February 8, 2021, which did not name ANI but did name Novitium. By opinion dated July 8, 2021, the district court dismissed all claims against the generic manufacturer defendants with prejudice on preemption grounds. That decision is on appeal to the Eleventh Circuit Court of Appeals.

ANI and Novitium were named in other individual personal injury complaints filed in MDL 20 MD 2924 in which plaintiffs allege that they developed cancer after taking prescription and over the counter medication containing ranitidine. ANI was served with complaints in five of those additional cases: Cooper v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81130-RLR (served September 30, 2020), Lineberry v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81079-RLR (served August 20, 2020), Lovette v. Amneal Pharmaceuticals, LLC, et al., MDL No. 20-MD-2924, Case No. 9:20-cv-81040-RLR (served August 26, 2020), Hightower v. Pfizer, et al, MDL No. 20-MD-2924, Case No. 9-20-cv-82214-RLR (served December 16, 2020) and Bird v. Boehringer Ingelheim Pharmaceuticals, et al., MDL No. 20-MD-2924, Case No. 9-20-cv-80837-RLR (served December 30, 2020). We have informed counsel for the plaintiffs that ANI did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited two-month period of time, from July 2019 to September 2019. ANI’s product was voluntarily recalled in January 2020. Each of the plaintiffs in the five pending cases alleges a cancer diagnosis prior to the time that ANI

28

Table of Contents

sold ranitidine, and we have informally sought dismissal from these cases on that basis. ANI was voluntarily dismissed from the Cooper, Lineberry and Lovette actions on November 20, 2020. ANI was voluntarily dismissed from the Bird action on March 15, 2021 and from the Hightower action on March 29, 2021.

Novitium has been named in 155 short form complaints filed by claimants in the MDL. Those complaints were effectively dismissed with prejudice with the MPIC on July 8, 2021. Counsel for the plaintiffs have been notified that Novitium did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited period of time, from December 2018 until September 2019. Novitium’s product was voluntarily recalled in October 2019. Out of the 155 short form complaints, approximately 111 plaintiffs either were diagnosed with cancer before Novitium began manufacturing the product, only took over the counter ranitidine, or took ranitidine before Novitium began manufacturing it. In light of the Court’s dismissal of all claims with prejudice, Novitium has not pursued dismissal of the short form complaints against it at this time.

On February 3, 2022, a complaint was filed in Cook County, Illinois, naming Novitium as a Defendant. The complaint incorrectly identifies Novitium as a “repackager.” The case is styled Ross v. Boehringer Ingelheim Pharmaceuticals, Inc., et. al. The complaint asserts claims of strict liability/failure to warn, strict liability/design defect, negligent failure to warn, negligent product design, general negligence, negligent misrepresentation, breach of express and implied warranties, and unjust enrichment. The Plaintiff alleges that he was diagnosed with prostate cancer in 2017 – before Novitium began selling generic ranitidine products -- and that he took over the counter ranitidine that he purchased at Walgreens from 2008-2019. At this point, the allegations show that the Plaintiff’s alleged cancer injury could not have come from a Novitium product. The generic manufacturer defendants filed a motion to dismiss on preemption grounds, which has not been fully briefed, and is still pending.  

ANI and Novitium dispute any liability in these MDL matters.

Other Industry Related Matters

On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce documents and possibly testify relating to a federal investigation of the

generic pharmaceutical industry. We have been cooperating and intend to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.

13.

FAIR VALUE DISCLOSURES

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.

The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of our funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities) approximate their carrying values because of their short-term nature. The Term Facility bears an interest rate that fluctuates with the changes in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying values of these borrowings approximated their fair values at March 31, 2022.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Contingent Value Rights

Our contingent value rights (“CVRs”), which were granted coincident with our merger with BioSante and expire in June 2023, are considered contingent consideration and are classified as liabilities. As such, the CVRs were

29

Table of Contents

recorded as purchase consideration at their estimated fair value, using level 3 inputs, and are marked to market each reporting period until settlement. The fair value of CVRs is estimated using the present value of our projection of the expected payments pursuant to the terms of the CVR agreement, which is the primary unobservable input. If our projection or expected payments were to increase substantially, the value of the CVRs could increase as a result. The present value of the liability was calculated using a discount rate of 15%. We determined that the fair value of the CVRs was immaterial as of March 31, 2022 and December 31, 2021. We also determined that the changes in such fair value were immaterial in the three months ended March 31, 2022 and 2021.

Interest Rate Swap

The fair value of our interest rate swap is estimated based on the present value of projected future cash flows using the LIBOR forward rate curve. The model used to value the interest rate swap includes inputs of readily observable market data, a Level 2 input. As described in detail in Note 5, the fair value of the interest rate swap was a $0.4 million asset at March 31, 2022.

Contingent Consideration

In connection with the acquisition of Novitium, we may pay up to $46.5 million in additional consideration related to 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.

The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

Payment Type

Valuation Technique

Unobservable Input

Range

Profit-based milestone payments

Probability-weighted discounted cash flow

Discount rate

12.3%

Projected fiscal year of payment

2023-2029

Product development-based milestone payments

Probability-weighted discounted cash flow

Discount rate

10.0%

Probability of payment

90.0%

Projected fiscal year of payment

2023-2024

The following table presents the changes in contingent consideration balances classified as Level 3 balances for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 

(in thousands)

    

2022

    

2021

    

Beginning balance

$

31,000

$

Measurement period adjustment

300

Change in fair value

 

753

 

Ending balance

$

32,053

$

30

Table of Contents

The following table presents our financial assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, by level within the fair value hierarchy:

(in thousands)

Fair Value at

Description

March 31, 2022

Level 1

Level 2

Level 3

Assets

 

  

 

  

 

  

 

  

Interest rate swap

$

431

$

$

431

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

32,053

$

$

$

32,053

CVRs

$

$

$

$

    

Fair Value at

    

    

    

Description

December 31, 2021

Level 1

Level 2

Level 3

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

31,000

$

$

$

31,000

Interest rate swaps

$

6,790

$

$

6,790

$

CVRs

$

$

$

$

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We do not have any financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

We do not have any non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure our long-lived assets, including property, plant, and equipment, ROU assets, intangible assets, and goodwill, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. No such fair value impairment was recognized in the three months ended March 31, 2022 and 2021.

Acquired Non-Financial Assets Measured at Fair Value

In April 2021, we acquired three NDAs and an ANDA and certain related inventories from Sandoz, Inc. for total consideration of $20.7 million. We also incurred and paid $0.4 million in transaction costs directly related to the acquisition. The acquisition was funded via borrowings under our Prior Revolver. We accounted for this transaction as an asset acquisition and capitalized the transaction costs directly related to the acquisition. We recognized $11.4 million as acquired intangible assets and $9.7 million of inventory at fair value, including $0.6 million of API, $1.0 million of sample inventory, and $8.1 million in finished goods inventory. In order to determine the fair value of the intangible assets, we used the present value of the estimated cash flows related to the product rights using a discount rate of 10%, which are level 3 unobservable inputs. The fair value of the inventory was determined based on the estimated selling price to be generated from the finished goods, less costs to sell, including a reasonable margin, which are level 3 unobservable inputs. The intangible assets are being amortized in full over a useful life of seven years and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were identified during the period from the date of acquisition to March 31, 2022 and therefore no impairment loss was recognized for the three months ended March 31, 2022.

14.

PURIFIED CORTROPHIN GEL PRE-LAUNCH CHARGES

In January 2016, we acquired the right, title and interest in the NDAs for Cortrophin Gel and Cortrophin-Zinc. Subsequently, we assembled a Cortrophin Gel re-commercialization team of scientists, executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin API, executed a long-

31

Table of Contents

term supply agreement with an API manufacturer, with whom we have advanced the manufacture of corticotropin API via manufacture of commercial-scale batches, and executed a long-term commercial supply agreement with a current good manufacturing practice (“cGMP”) aseptic fill contract manufacturer.

Prior to the third quarter 2019, all purchases of material, including pig pituitary glands and API, related to the re-commercialization efforts were consumed in research and development activities and recognized as research and development expense in the period in which they were incurred. In the third quarter of 2019, we began purchasing materials that are intended to be used commercially in anticipation of FDA approval of Cortrophin Gel and the resultant product launch. The FDA granted approval of the sNDA of this product on October 29, 2021. Prior to FDA approval, under U.S. GAAP, we were prohibited from capitalizing these pre-launch purchases of materials as inventory, and accordingly, they were charged to expense in the period in which they were incurred. Subsequent to approval, these purchases are recorded as inventory at net realizable value.

15. RELATED PARTY TRANSACTIONS

On March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership, pursuant to which we agreed to issue and sell 25,000 shares of our PIPE Shares for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 million. This agreement closed and the shares were sold and issued for $25.0 million on November 19, 2021. The Chairman of our board of directors is an operating partner of Ampersand Capital Partners, an affiliate of the PIPE Investor.

In connection with our acquisition of Novitium, we entered into employment agreements with the two executives and founders of Novitium, Muthusamy Shanmugam and Chad Gassert. Both will serve as executive officers of the Company and Mr. Shanmugam was also appointed to the board of directors. Mr. Shanmugam holds a minority interest in Scitus Pharma Services (“Scitus”), which provides clinical research services to Novitium, majority interest in SS Pharma LLC (“SS Pharma”), which acquires and supplies API to Novitium, majority interest in Esjay Pharma LLC (“Esjay”), which provides research and development and facilities consulting services, and a minority interest in Nuray Chemical Private Limited (“Nuray”), which manufactures and supplies API to Novitium. Mr. Gassert holds a minority interest in Scitus. During the three months ended March 31, 2022, we paid Esjay an immaterial amount, paid SS Pharma $1.0 million, paid Nuray $0.9 million, and paid Scitus $0.6 million. As of March 31, 2022, the outstanding balance due to Scitus was $0.1 million. As of March 31, 2022, there were no outstanding balances due to SS Pharma, Esjay, and Nuray.

16. SEGMENT REPORTING

An operating segment is defined as a component of an entity that engages in business activities from which it may recognize revenues and incur expense, its operating results are regularly reviewed by the entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and its discrete financial information is available. Prior to 2022, based on this definition, we had concluded that we had one operating segment. Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Purified Cortrophin Gel, we determined that we have two operating segments as follows:

Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other.

Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Purified Cortrophin Gel.

32

Table of Contents

Our CODM evaluates our two operating segments based on revenues and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”), exclusive of corporate expenses and other expenses not directly allocated or attributable to an operating segment. These expenses include but are not limited to certain management, legal, accounting, human resources, insurance, and information technology expenses.

We do not manage assets of the company by operating segment and our CODM does not review asset information by operating segment. Accordingly, we do not present total assets by operating segment.

Financial information by reportable segment is as follows:

Three Months Ended

(in thousands)

    

March 31, 2022

    

March 31, 2021

Net Revenues

Generics, Established Brands, and Other

$

63,185

$

54,521

Rare Disease

1,292

Total net revenues

$

64,477

$

54,521

Segment earnings/(loss) before interest, taxes, depreciation and amortization ("EBITDA") and reconciliation to (loss)/income before income taxes

Generics, Established Brands, and Other

14,531

21,839

Rare Disease

(10,448)

(1,278)

Depreciation and amortization

(14,557)

(10,898)

Corporate and other unallocated expenses(1)

(8,721)

(6,618)

Total operating (loss)/income

$

(19,195)

$

3,045

Interest expense, net

(6,613)

(2,454)

Other expense, net

(89)

(515)

(Loss)/income before benefit for income taxes

$

(25,897)

$

76

(1) Includes expenses not directly allocated or attributable to a reporting segment, including certain management, legal, accounting, human resources, insurance, and information technology expenses, and are included in selling, general, and administrative expenses in our unaudited interim consolidated statement of operations.

Geographic Information

Our operations are located in the United States, Canada, and India. The majority of the assets of the Company are located in the United States.

The following table depicts the Company’s revenue by geographic operations during the following periods:

(in thousands)

Three Months Ended March 31, 

Location of Operations

    

2022

    

2021

    

United States

$

63,760

$

53,327

Canada

 

717

 

1,194

Total Revenue

$

64,477

$

54,521

The following table depicts the Company’s property and equipment, net according to geographic location as of:

(in thousands)

March 31, 2022

December 31, 2021

United States

$

38,770

$

38,564

Canada

 

13,685

 

13,831

India

 

258

 

276

Total property and equipment, net

$

52,713

$

52,671

33

Table of Contents

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and the accompanying notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”), as well as the information contained under Management’s Discussion and Analysis of Financial Condition and Results of Operations and "Risk Factors" contained in the 2021 Annual Report, and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q , and other information provided from time to time in our other filings with the SEC. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” in our 2021 Annual Report and this Quarterly Report on Form 10-Q.

EXECUTIVE 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.

Strategy

Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors. Our growth strategy is driven by the following key pillars:

Building a successful Purified Cortrophin Gel franchise

We acquired the NDAs for Cortrophin gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin active pharmaceutical ingredient (“API”), a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin gel fill/finish contract manufacturer. During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA.

On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin™ Gel (Repository Corticotropin Injection USP) for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin.

During 2021 and the first quarter of 2022, we invested in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. In the fourth quarter of 2021 and first quarter of 2022, we hired a significant number of new employees and assembled and trained our rare disease field force. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S. As a result of the build out of our rare disease team, our expenditures in support of these efforts will be significantly higher in 2022 as compared to 2021.

34

Table of Contents

Strengthening our generics business with enhanced research and development capability and increased focus on niche opportunities

We have grown our generics business through a combination of market share gains on existing products and new product launches. We have also successfully acquired numerous ANDAs through business and asset acquisitions, including, most recently, our acquisition of Novitium Pharma LLC (“Novitium”), including their portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce. We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and Competitive Generic Therapy designation filings. Additionally, we will continue to seek opportunities to enhance our capabilities through strategic partnerships and acquisitions of assets and businesses.

Maximizing the value from our established brands through innovative “go-to-market” (“GTM”) strategies and continued programmatic acquisitions

We have acquired the New Drug Applications (“NDAs”) for and market Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, Oxistat, Veregen, and Pandel. We are innovating in our GTM strategy through creative partnerships. In addition, we will continue to explore opportunities in acquiring new brands to grow our established brands portfolio.

Expansion of contract development and manufacturing organization (“CDMO”) business by leveraging our unique manufacturing capabilities

We built a CDMO business through our sites in Baudette and grew it through the acquisitions of Novitium and WellSpring Pharma Services Inc. (“ANI Canada”). Our North America based manufacturing and unique capabilities in high-potency, hormonal, steroid, and oncolytic products can be leveraged to expand our CDMO business.

The pillars of our strategy are enabled by an empowered, collaborative, and purposeful team with a high performance-orientation.

Product Development Considerations

We consider a variety of criteria in determining which products to develop, all of which influence the level of competition upon product launch. These criteria include:

Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture.
Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges.
Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit.
Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products.

35

Table of Contents

Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products.
Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete.

Recent Developments

Operating Segment Update

Prior to 2022, we had concluded that we had one operating segment. Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Purified Cortrophin Gel, we determined that we now have two operating segments as follows:

Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products (“CDMO”), product development services, royalties, and other.

Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions. The rare disease segment currently consists of operations related to Purified Cortrophin Gel.

Product Launches

Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments.

Purified Cortrophin Gel Re-commercialization Update

Purified Cortrophin Gel became available to our customers in late 2021, and we recognized an immaterial amount of revenues during the year ended December 31, 2021. On January 24, 2022, we announced the full-scale U.S. commercial availability and launch of Purified Cortrophin Gel.

COVID-19 Impact

We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on our business and the geographic regions where we operate. Per IQVIA/IMS data, total market generic and brand prescriptions were depressed during the three months ended March 31, 2021, as subsequent waves and variants of the virus impacted patient and customer behavior. The decrease in prescriptions had a negative impact on our net revenues during this period. IQVIA/IMS data indicates that total market generic and brand prescriptions have returned to normal pre-pandemic levels thus far in 2022. We have not experienced a significant impact to our manufacturing operations; however, we did and continue to see disruptions to our supply chain from the COVID-19 pandemic during 2022, including significant lead times for purchases of materials. The pandemic has not impacted our access to capital and has not significantly impacted our use of funds, including but not limited to capital expenditures, spend on research and development activities and business development opportunities.

We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future financial condition, results of operations and cash flows due to numerous uncertainties, including the continued duration of the

36

Table of Contents

pandemic, the appearance of additional variants of the virus, the level of success of continued actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

37

Table of Contents

GENERAL

Impacts to our 2022 and 2021 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below. Our results of operations for the three months ended March 31, 2022 were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date. The acquisition provides additional revenues and the incurrence of increased costs, including but not limited to the amortization of intangible assets acquired, other operating costs, and increased interest costs on borrowings used to finance the transaction. During the three months ended March 31, 2022, Novitium operations generated $19.2 million in net revenues.

The following table summarizes our results of operations for the periods indicated:

Three Months Ended

March 31, 

(in thousands)

    

2022

    

2021

Net revenues

$

64,477

$

54,521

Operating expenses

 

 

  

Cost of sales (exclusive of 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

Operating (loss)/income

 

(19,195)

 

3,045

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

The following table sets forth, for all periods indicated, items in our unaudited interim condensed consolidated statements of operations as a percentage of net revenues:

Three Months Ended

 

March 31, 

 

    

2022

    

2021

 

Net revenues

 

100.0

%  

100.0

%

Operating expenses

 

  

 

  

Cost of sales (exclusive of depreciation and amortization)

 

53.2

%  

36.7

%

Research and development

 

8.2

%  

5.4

%

Selling, general, and administrative

 

44.7

%  

32.3

%

Depreciation and amortization

 

22.6

%  

20.0

%

Contingent consideration fair value adjustment

1.2

%  

%  

Purified Cortrophin Gel pre-launch charges

 

%  

0.1

%

Operating (loss)/income

 

(29.9)

%  

5.5

%

Interest expense, net

 

(10.3)

%  

(4.5)

%

Other expense, net

 

(0.1)

%  

(0.9)

%

(Loss)/income before benefit for income taxes

 

(40.3)

%  

0.1

%

Benefit for income taxes

 

8.9

%  

%

Net (loss)/income

 

(31.4)

%  

0.1

%

38

Table of Contents

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

Net Revenues

Three Months Ended March 31, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Generics, Established Brands, and Other Segment

Generic pharmaceutical products

$

49,107

$

32,988

$

16,119

 

48.9

%

Established brand pharmaceutical products

 

8,452

 

7,517

 

935

 

12.4

%

Contract manufacturing

 

2,904

 

2,573

 

331

 

12.9

%

Royalty and other

 

2,722

 

11,443

 

(8,721)

 

(76.2)

%

Generics, established brands, and other segment total net revenues

$

63,185

$

54,521

$

8,664

15.9

%

Rare Disease Segment

Rare disease pharmaceutical products

$

1,292

$

1,292

NM

(1)

Total net revenues

$

64,477

$

54,521

$

9,956

 

18.3

%

(1)Not meaningful

We derive substantially all of our revenues from sales of generic, established brand, and rare disease pharmaceutical products, contract manufacturing, royalties on net sales of certain products, and other services, including development services, and laboratory services. Many of our established brand products face competition from generic products and we expect them to continue to face competition from generic products in the future. Our generic products face competition from other generic products and we expect them to continue to face competition in the future. The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability. Increased competition generally results in decreased average selling prices of generic and brand products over time. In addition, due to strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains. Our rare disease pharmaceutical product, Purified Cortrophin Gel, competes in the adrenocorticotrophic hormone (“ACTH”) therapeutic category against one principal brand competitor.

Net revenues for the three months ended March 31, 2022 were $64.5 million compared to $54.5 million for the same period in 2021, an increase of 18.3%, primarily as a result of the following factors:

Net revenues for generic pharmaceutical products were $49.1 million during the three months ended March 31, 2022, an increase of 48.9% compared to $33.0 million for the same period in 2021. From a product perspective, the increase was principally driven by revenues of $15.7 million from products acquired in our acquisition of Novitium, including Prazosin, Prednisone, Famotidine, Oxybutynin Chloride and various other products. The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021. Increases were tempered by a decrease in revenues of Penicillamine. The increase in net generic revenues was principally due to an increase in volumes and tempered by a decrease in average selling prices.

Generic prescription levels were suppressed when compared to pre-pandemic levels during the three months ended March 31, 2021, which had a negative impact on our net sales of generic pharmaceutical products during the period. Prescriptions have returned to essentially normal levels in 2022.

Net revenues for established brand pharmaceutical products were $8.5 million during the three months ended March 31, 2022, an increase of 12.4% compared to $7.5 million for the same period in 2021. From a product perspective, the net increase was driven by modest increases in sales over a large number of the portfolio products, including those acquired from Sandoz and launched in April 2021. These increases were tempered by a decrease in sales of Casodex. Net brand revenues in the three months ended March 31, 2021 were positively impacted by a shift in mix towards products with higher average selling prices.

39

Table of Contents

Sales of our established brand products were negatively impacted by the COVID-19 pandemic during the three months ended March 31, 2021, as mitigation measures and other related actions suppressed prescription levels during the period. Prescriptions have returned to essentially normal levels in 2022.

Contract manufacturing revenues were $2.9 million during the three months ended March 31, 2022, an increase of 12.9% compared to $2.6 million for the same period in 2021, due to an increase in the volume of orders, including $1.1 million of Novitium contract manufacturing revenues.

Royalty and other revenues were $2.7 million during the three months ended March 31, 2022, a decrease of $8.7 million from $11.4 million for the same period in 2021, due to the recognition of the final royalty of $11.2 million under the Kite Pharma, Inc. license agreement (Yescarta®) pursuant to the Tripartite Agreement in the three months ended March 31, 2021. Royalty and other revenues in 2022 primarily consist of $1.9 million of royalty revenues related to Novitium arrangements and $0.6 million of product development service revenues.
Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $1.3 million during the three months ended March 31, 2022, as the product was launched in late January 2022. There were no sales of rare disease pharmaceutical products during the comparable prior year period.

Cost of Sales (Excluding Depreciation and Amortization)

Three Months Ended March 31, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Cost of sales (excl. depreciation and amortization)

$

34,271

$

19,985

$

14,286

 

71.5

%

Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging components, and royalties related to profit-sharing arrangements. Cost of sales does not include depreciation and amortization expense, which is reported as a separate component of operating expenses on our unaudited interim condensed consolidated statements of operations.

For the three months ended March 31, 2022, cost of sales increased to $34.3 million from $20.0 million for the same period in 2021, an increase of $14.3 million, or 71.5%. The increase is primarily due to increased volumes of generic products, including $9.5 million of costs related to activity of Novitium during the three months ended March 31, 2022 with no comparable activity in the prior year period, $3.8 million in costs representing the excess of fair value over cost for inventory acquired in an asset acquisition and a business combination, of which $3.2 million relates to inventory acquired from Novitium and included in the previously discussed $9.5 million of cost of sales. The increases were tempered by $1.1 million in lower costs related to a current period decrease in sales of products subject to profit sharing arrangements.

Cost of sales, exclusive of the $3.8 million net impact related to excess of fair value over the cost of inventory sold during the period, as a percentage of net revenues increased to 47.2% during the three months ended March 31, 2022, from 36.7% during same period in 2021, primarily due to $11.2 million in royalty revenue during the three months ended March 31, 2021 with no associated cost of goods sold. Excluding the $11.2 million of revenue from 2021 results, cost of sales would have been 46.1% of net revenues. The increase is also a result of increased volumes in a period of declining average selling prices across generic products and a shift in mix towards generic products, which have lower average selling prices. The negative impacts were tempered by $1.1 million in lower costs related to a current period decrease in sales of products subject to profit sharing arrangements.

During the three months ended March 31, 2022, one single vendor represented 16% of inventory purchases. During the three months ended March 31, 2021, we purchased approximately 11% of our inventory from one supplier.

40

Table of Contents

Other Operating Expenses

Three Months Ended March 31, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

    

Research and development

$

5,274

$

2,968

$

2,306

 

77.7

%  

Selling, general, and administrative

 

28,817

 

17,587

 

11,230

 

63.9

%  

Depreciation and amortization

 

14,557

 

10,898

 

3,659

 

33.6

%  

Contingent consideration fair value adjustment

753

753

NM

(1)

Purified Cortrophin Gel pre-launch charges

 

 

38

 

(38)

 

(100.0)

%  

Total other operating expenses

$

49,401

$

31,491

$

17,910

 

56.9

%  

(1)Not meaningful

Other operating expenses consist of research and development costs, selling, general, and administrative expenses, depreciation and amortization, contingent consideration fair value adjustment, and Purified Cortrophin Gel pre-launch charges.

For the three months ended March 31, 2022, other operating expenses increased to $49.4 million from $31.5 million for the same period in 2021, an increase of $17.9 million, or 56.9%, primarily as a result of the following factors:

Research and development expenses increased from $3.0 million to $5.3 million, an increase of 77.7%, primarily due to $3.5 million in expenses related to the Novitium activities during the three months ended March 31, 2022 and no comparable expenses in the three months ended March 31, 2021, and tempered by a $0.7 million decrease in expense associated with the completion of our Cortrophin development efforts.
Selling, general, and administrative expenses increased from $17.6 million to $28.8 million, an increase of $11.2 million, or 63.9%, primarily due to $11.0 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, $2.7 million of expenses primarily related to the addition of Novitium headcount and activities during the three months ended March 31, 2022, with no comparable expenses in the 2021 period, and tempered by a $1.9 million decrease in transaction expenses related to the Novitium acquisition.
Depreciation and amortization expense was $14.6 million for the three months ended March 31, 2022, compared to $10.9 million for the same period 2021, an increase of $3.7 million. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition.

As described in Note 13, Fair Value Disclosures, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we recognized a contingent consideration fair value adjustment of $0.8 million in the three months ended March 31, 2022. The expense is principally due to a decrease in the discount rate and the passage of time. No contingent consideration fair value adjustment was recognized in the three months ended March 31, 2021.

Other Expense, net

Three Months Ended March 31, 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

  

Interest expense, net

$

(6,613)

$

(2,454)

$

(4,159)

 

169.5

%  

Other expense, net

 

(89)

 

(515)

 

426

 

(82.7)

%  

Total other expense, net

$

(6,702)

$

(2,969)

$

(3,733)

 

125.7

%  

 

For the three months ended March 31, 2022, we recognized total other expense, net of $6.7 million versus total other expense of $3.0 million for the same period in 2021, an increase of $3.7 million. Interest expense, net for the three months ended March 31, 2022 consisted primarily of interest expense on borrowings under our new Term Facility. Interest expense, net for the three months ended March 31, 2021 consisted primarily of interest expense on borrowings under our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit

41

Table of Contents

Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. The increase in interest expense is due to an increase in the debt outstanding during the three months ended March 31, 2022 coupled with an increase borrowing rate on the $300.0 million Term Facility as compared to the borrowing rate on the Prior Credit Agreement borrowings and an increase in amortization of finance fees. During the three months ended March 31, 2022, there was $300.0 million of outstanding borrowings, compared to $184.6 million during the comparable 2021 period. For the three months ended March 31, 2022 and 2021, there was less than $0.1 million of interest capitalized into construction in progress.

Benefit for Income Taxes

Three Months Ended March 31, 

 

(in thousands)

    

2022

    

2021

    

Change

    

% Change

 

Benefit for income taxes

$

5,767

$

10

$

5,757

 

NM

(1)

(1)Not meaningful

Our provision for income taxes consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

For the three months ended March 31, 2022, we recognized an income tax benefit of $5.8 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 22.3% to pre-tax consolidated loss of $25.9 million reported during the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended March 31, 2022.

For the three months ended March 31, 2021, we recognized an income tax benefit of less than $0.1 million. The income tax benefit resulted from applying an estimated annual worldwide effective tax rate of 27.7% to pre-tax consolidated income of $0.1 million reported during the period, reduced by the net effects of certain discrete items occurring in 2021

which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the three months ended March 31, 2021.

LIQUIDITY AND CAPITAL RESOURCES

Debt Financing

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 Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries.

The Term Facility proceeds were used to finance the cash portion of the consideration under the merger agreement between ANI and Novitium, repay borrowings under our Prior Credit Agreement, and pay fees, costs and expenses incurred in connection with the acquisition of Novitium. 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) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement, which includes a floor of 0.75%) in the case of loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the 12 months ended December 31, 2022. As of March 31, 2022,

42

Table of Contents

$3.0 million of principal of the loan was recorded as current borrowings in the consolidated balance sheet. As of March 31, 2022, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing.

Equity Financing

Concurrently with the execution of the Merger Agreement, on March 8, 2021, we entered into that certain Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”) pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 25,000 shares of our Series A Convertible Preferred Stock , for a purchase price of $1,000 per share and an aggregate purchase price of $25 million, in a private placement issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million. The proceeds will be used to fund our Purified Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes.

We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of March 31, 2022, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.

Cash Flows

The following table summarizes the net cash and cash equivalents provided by/(used in) by operating activities, investing activities, and financing activities for the periods indicated:

Three Months Ended March 31, 

(in thousands)

    

2022

    

2021

Operating Activities

$

(18,942)

$

20,668

Investing Activities

$

(2,178)

$

(737)

Financing Activities

$

(2,270)

$

(2,725)

Net Cash (Used In) / Provided by Operations

Net cash used in operating activities was $18.9 million for the three months ended March 31, 2022, compared to $20.7 million provided by operating activities during the same period in 2021, a decrease of $39.6 million. The decrease was driven by our net loss and net changes in working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 was $2.2 million, principally due to the $1.9 million of capital expenditures during the period. Net cash used in investing activities for the three months ended March 31, 2021 was $0.7 million, principally due to $0.7 million of capital expenditures during the period. 

Net Cash Used in Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 was $2.3 million, principally due to the $0.8 million maturity payments on the Term Facility, $1.1 million of treasury stock purchased in relation to restricted stock vests, and $0.4 million convertible preferred stock dividends paid. Net cash used in financing activities was $2.7 million for the three months ended March 31, 2021, principally due to $2.3 million of maturity payments on borrowings under our Prior Credit Agreement and $0.3 million of treasury stock purchased in relation to restricted stock vests.

43

Table of Contents

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management 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 our consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, 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, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, and the depreciable lives of long-lived assets.

A summary of our significant accounting policies is included in Part II, Item 8. Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

A discussion of the recently issued accounting pronouncements is described in Note 1, Business, Presentation, and Recent Accounting Pronouncements, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

CONTRACTUAL OBLIGATIONS

As of March 31, 2022, our contractual obligations have not changed materially from the amounts reported in our most recent Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risks include interest rate risk, equity risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Of these risks, interest rate risk, equity risk, and foreign currency exchange rate risk could have a significant impact on our results of operations.

 

On November 19, 2021, we entered into the Credit Agreement, which is secured by substantially all of the personal property and certain material real property owned by ANI and our wholly-owned domestic subsidiaries, and obligations under the Credit Agreement are guaranteed by certain of our wholly-owned domestic subsidiaries.

 

The Term Facility proceeds were used to finance a portion of the consideration under the Merger Agreement, repay our existing credit facility, refinance certain indebtedness of Novitium and its subsidiaries, and pay fees, costs and expenses incurred in connection with the acquisition. 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 on the six-year anniversary of the Closing Date and the Revolving Facility matures on the five-year anniversary of the Closing Date. The Revolving Facility and the Term Facility each permit both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the

44

Table of Contents

Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of Eurodollar Loans under the Revolving Facility.

 

The Credit Agreement contains usual and customary representations and warranties of the parties for credit facilities of this type, subject to customary exceptions and materiality standards. In addition, we are required to maintain, a total net leverage ratio not to exceed 4.75:1.00 and, solely with respect to the Revolving Facility, (a) during the period beginning on October 1, 2022 and ending on September 30, 2023, a total net leverage ratio not to exceed 4.50:1.00 and (b) for all periods thereafter, a total net leverage ratio not to exceed 4.25:1.00.

 

The Credit Agreement also contains certain customary covenants and events of default, as well as, in the event of an occurrence of an event of default under the Credit Agreement, customary remedies for the lenders, including the acceleration of any amounts outstanding under the Credit Agreement.

 

In April 2020, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Facility with Truist Bank, the interest rate swap was novated and is now with Truist Bank and is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. We are exposed to interest rate risk on the unhedged portion of our Term Facility and if interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $1.4 million. If our Revolving Facility were fully drawn and interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $0.4 million. The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. As a result of the interest rate swap, our exposure to interest rate volatility is minimized.

We are exposed to risks associated with changes in interest rates. The returns from certain of our cash and cash equivalents will vary as short-term interest rates change. A 100 basis-point adverse movement (decrease) in short-term interest rates would decrease the interest income earned on our cash balance in the three months ended March 31, 2022 by approximately $6,000.

We are exposed to risks associated with foreign currency exchange rate risks as we remeasure certain Canadian dollar-denominated and Indian rupee-denominated transactions from ANI Pharmaceuticals Canada Inc. and our Indian subsidiary from the Canadian dollar to the U.S. dollar and the Indian-rupee to the U.S. dollar. Changes in exchange rates can positively or negatively impact our revenue, income, assets, liabilities, and equity. Currency exchange rates did not have a material impact on our revenue, income, assets, liabilities, or equity during the three months ended March 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our

45

Table of Contents

disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.

On November 19, 2021, we acquired all the issued and outstanding equity interests of Novitium Pharma LLC (“Novitium”). In conjunction with the transaction, we are currently in the process of integrating Novitium’s policies, processes, people, technology, and operations into the consolidated company, and integrating Novitium’s operations into our system of internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1.   Legal Proceedings

Please refer to Note 12, Commitments and Contingencies, in the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A.   Risk Factors

In addition to the other information set forth in this report, please carefully consider the factors described under the heading “Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 in Part I, Item 1A. Risk Factors. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

Maximum Number (or

Total Number of

approximate dollar

Shares Purchased as

value) of Shares

Total Number

Part of Publicly

that may yet be

of Shares

Average Price

Announced Plans or

Purchased Under the

Period

    

Purchased(1)

    

Paid per Share

    

Programs

    

Plans or Programs

January 1 - January 31, 2022

$

$

February 1 - February 28, 2022

2,351

$

40.25

$

March 1 - March 31, 2022

37,695

$

27.16

$

Total

40,046

$

27.92

  

(1) Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.

46

Table of Contents

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

Item 6.    Exhibits

The exhibits listed in the Index to Exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

INDEX TO EXHIBITS

Exhibit No.

     

Description

10.1

Asset Purchase Agreement between Cranford Pharmaceuticals, LLC and ANI Pharmaceuticals, Inc. (1)

10.2

Asset Purchase Agreement between Holmdel Pharmaceuticals, LP and ANI Pharmaceuticals, Inc. (1)

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)-14(a)/15d-14(a).

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)-14(a)/15d-14(a).

32.1

Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following financial information from this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2022 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1)
Confidential treatment has been granted with respect to redacted portions of this document or certain information has been omitted from this exhibit in accordance with Regulation S-K Item 601(b)(10)(iv). The Company agrees to furnish supplementally a copy of any omitted information to the Securities and Exchange Commission upon its request.

47

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ANI Pharmaceuticals, Inc. (Registrant)

Date:

May 10, 2022

By:

/s/ Nikhil Lalwani

Nikhil Lalwani

President and

Chief Executive Officer

(principal executive officer)

Date:

May 10, 2022

By:

/s/ Stephen P. Carey

Stephen P. Carey

Senior Vice President, Finance and

Chief Financial Officer

(principal financial and accounting officer)

48