Akorn Provides Preliminary First Quarter 2019 Results and Full Year Guidance

Globe Newswire 7-May-2019 7:05 AM

-Operational improvements drive sequential growth-

-Full year outlook anticipates further sequential growth throughout the year-

LAKE FOREST, Ill., May 07, 2019 (GLOBE NEWSWIRE) -- Akorn, Inc. (NASDAQ:AKRX), a leading specialty generic pharmaceutical company, today announced its preliminary financial results for the first quarter of 2019.

First Quarter 2019 and Recent Business Highlights

• Net revenue was $166 million, up 8% from the fourth quarter of 2018, down 10% from the prior year quarter
• Net loss was $82 million, compared to $215 million in the fourth quarter of 2018 and $29 million in the prior year quarter
• Adjusted EBITDA was $10 million, compared to ($20) million in the fourth quarter of 2018 and $25 million in the prior year quarter
• Cash position of $184 million as of March 31, 2019
• Full year 2019 guidance anticipates continued sequential improvement throughout the year 
• Ongoing progress towards completion of FDA action items related to the inspections of our facilities in Decatur and Somerset
• Further strengthening of leadership team and organizational capabilities
• Significant reduction in backorders and failure to supply penalties
• Two products launched year-to-date: Ropivacaine Hydrochloride Injection, USP (2mg/ml) and TheraTears® SteriLid® Antimicrobial, the 1st FDA Accepted Antimicrobial Eyelid Cleanser
• Two New Product Approvals: Loteprednol Etabonate Ophthalmic Suspension, 0.5% and Fluticasone Propionate Nasal Spray USP, 50 mcg per spray (OTC)
• Extended revolving credit facility and executed a Standstill Agreement with current lending institutions

See "Non-GAAP Financial Measures" below.

Douglas Boothe, Akorn's President and Chief Executive Officer, stated, "We are pleased with the initial progress made across the organization executing against our operations, quality systems and compliance enhancement initiatives.  As a result, our first quarter financial results were stronger than anticipated and benefited from the resumption of full operations, improvement in product availability and strong demand across our diversified lines of business.  We believe that continued focus on these initiatives will provide us with a path to long-term, profitable growth."

Boothe further commented, "As part of our confidence in our business fundamentals and in our ability to execute on the strategic growth objectives, we are providing guidance for the full year 2019.  We believe this is a strong step in the right direction as we get back to running our company with a freedom to operate and focus on creating value for our stakeholders."

Summary Financial Results for the Quarter Ended March 31, 2019

Akorn reported net revenue of $165.9 million for the three month period ended March 31, 2019, representing a decrease of $18.2 million, or 9.9%, as compared to net revenue of $184.1 million for the three month period ended March 31, 2018.  The decrease in net revenue in the period was primarily due to $18.1 million decline in organic revenue that was partially offset by $0.7 million net revenue increase in new products and product relaunches.  The $18.1 million decline in organic revenue was due to approximately $30.5 million, or 16.6% in volume declines partially offset by $12.3 million, or 6.7%, of price variances.  The volume decline was principally due to the effect of competition on Ephedrine Sulfate Injection, Nembutal® and Cosopt® PF and supply shortfalls from the continued production ramp-up at our Somerset and Decatur manufacturing facilities.

Consolidated gross profit for the quarter ended March 31, 2019, was $53.5 million, or 32.3% of net revenue, compared to $82.2 million, or 44.7% of net revenue, in the corresponding prior year quarter.  The decline in the gross profit percentage was principally due to unfavorable product mix shifts primarily driven by the effect of competition on Ephedrine Sulfate Injection, Nembutal® and Cosopt®, unfavorable variances due to decreased production at our Somerset manufacturing facility, as well as increased operating costs associated with FDA compliance related improvement activities.

GAAP net loss for the first quarter 2019, was $82.2 million, or $(0.65) per diluted share, compared to GAAP net loss of $28.7 million, or $(0.23) per diluted share, for the same quarter of 2018.  Including a net adjustment of $70 million to net loss for non-GAAP items, adjusted diluted earnings per share for the first quarter 2019 were $(0.10), compared to $0.05 in the same quarter 2018, after a net adjustment of $35 million to net income for non-GAAP items.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $(47.7) million for the first quarter 2019, compared to $(6.2) million for the first quarter 2018.  Adjusted EBITDA, which is non-GAAP measure used by management to evaluate the continuing operations of the Akorn business, was $9.6 million for the first quarter 2019, compared to $24.5 million for the first quarter 2018.  See "Non-GAAP Financial Measures" below.

Fiscal 2019 Guidance

Duane Portwood, Akorn's Chief Financial Officer, stated, "Our full year 2019 expectations anticipate building upon the momentum from the first quarter with sequential improvements expected over the course of the year, with the most significant contributions weighted towards the fourth quarter."

Akorn's full year 2019 guidance:

• Net revenue for the year expected to be in the range of $690 to $710 million
• Net Loss expected in the range of ($166) to ($151) million
• Adjusted EBITDA expected in the range of $71 to $86 million
• Approximately $40 million in capital expenditures
• Approximately $40 million for data integrity investigation and FDA compliance related expenditures

Standstill Agreement

We have been working constructively with our creditors and are pleased to have reached an agreement that is expected to provide Akorn time to continue to make progress on operational initiatives and deliver improved results, while also providing the lending institutions with additional transparency, reduced risk and enhanced protections.  For further information, we refer you to the Current Report on Form 8-K filed earlier today, which details the economic and non-economic terms of such agreement, including the covenants and other protections that we are providing to our lending institutions.

Status of Akorn Pending ANDA Filings, April 30, 2019:

In an effort to improve the efficiency of our future R&D spend, we have recently completed a review of our pending ANDAs and have decided to rationalize a number of pending filings.  Because of changes in the market size or competitive landscape, the expected commercial opportunity for these ANDAs no longer justifies further investment of time or funds required to obtain the approval.  The remaining pending ANDAs are summarized in the table below:

*  The value, shown in millions, is the market size estimate based on IQVIA data for the trailing 12 months
 ended March 31, 2019 and excludes any trade and customary allowances and discounts.  The IQVIA market size is not a forecast of our future sales.

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

Conference Call and Webcast Details:
As previously announced, Akorn's management will hold a conference call with interested investors and analysts at 10:00 a.m. EST on May 7, 2019, to discuss these results and updates in more detail.  The dial-in number to access the call is (844) 249-9382 in the U.S. and Canada and +1 (270) 823-1530 for international callers.  The conference ID is 8456549.  To access the live webcast, please go to Akorn's Investor Relations web site at http://investors.akorn.com.  A webcast replay of the conference call will be available shortly following the conclusion of the call and will be available for 90 days following the call.  To access the webcast replay, please go to Akorn's Investor Relations web site at http://investors.akorn.com.

About Akorn:
Akorn, Inc. is a specialty generic pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals.  Akorn has manufacturing facilities located in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals.  Additional information is available on Akorn's website at www.akorn.com.

Non-GAAP Financial Measures:

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

Akorn's management uses EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share in managing and analyzing its business and financial condition.  Akorn's management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn's ongoing results of operations allowing investors to better compare the Company's results from period to period.

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

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

EBITDA, as defined by the Company, represents net income before net interest expense, income tax expense, depreciation and amortization.

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

Net (loss) income, (minus) plus:          

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

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

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

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

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

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

Cautionary Note Regarding Forward-Looking Statements

This press release includes statements that may constitute "forward-looking statements", including expectations regarding the Company's business plan and initiatives, the Company's commitments to the FDA, disruptions during the Standstill Period and other statements regarding the Company's plans and strategy. When used in this document, the words "will," "expect," "continue," "believe," "anticipate," "estimate," "intend," "could," "strives" and similar expressions are generally intended to identify forward-looking statements. These statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Exchange Act. A number of important factors could cause actual results of the Company and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to: (i) the effect of the Delaware court's recent decision against the Company on the Company's ability to retain and hire key personnel, its ability to maintain relationships with its customers, suppliers and others with whom it does business, or its operating results and business generally, (ii) the risk that ongoing or future litigation related to the court's decision may result in significant costs of defense, indemnification and/or liability, (iii) the outcome of the investigation conducted by the Company with the assistance of outside consultants, into alleged breaches of FDA data integrity requirements relating to product development at the Company and any actions taken by the Company, third parties or the FDA as a result of such investigations, (iv) the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any, (v) the timing and success of product launches, (vi) difficulties or delays in manufacturing, (vii) the Company's increased indebtedness and compliance with certain covenants and other obligations under the Standstill Agreement, which create material uncertainties and risks to its growth and business outlook, (viii) the Company's obligation under the Standstill Agreement to enter into a Comprehensive Amendment that is satisfactory in form and substance to the Lenders, (ix) the Company's obligation under the Standstill Agreement to pay certain fees and expenses and increased interest margin, (x) such other risks and uncertainties outlined in the risk factors detailed in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (as filed with the Securities and Exchange Commission ("SEC") on March 1, 2019), to be detailed in Part II, Item 1A, "Risk Factors," of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 (expected to be filed with the SEC by May 10, 2019) and other risk factors identified from time to time in the Company's filings with the SEC. Readers should carefully review these risk factors, and should not place undue reliance on the Company's forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this press release. The Company undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

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

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

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

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

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

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

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

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

(2) Net debt to Adjusted EBITDA ratio, as defined by the Company, is net debt divided by the trailing twelve months Adjusted EBITDA.

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

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