Stock Update (NASDAQ:AKRX): Akorn, Inc. Provides Preliminary Unaudited Full Year 2015 Financial Results And Issues 2016 Financial Guidance


Akorn, Inc. (NASDAQ:AKRX), a leading specialty generic pharmaceutical company, today provided preliminary unaudited 2015 financial results and issued 2016 financial guidance.Akorn also provided material updates on several other important business items.

Preliminary net revenue for 2015 is anticipated to be approximately $985 million and preliminary GAAP diluted earnings per share (EPS) is expected to be $1.14. Preliminary non-GAAP adjusted EPS for 2015 is expected to be $1.93.

2015 Operating Highlights

  • In 2015, Akorn received 15 product approvals and two tentative approvals from the U.S. Food and Drug Administration (FDA); including 11 abbreviated new drug application (ANDA) approvals, two abbreviated new animal drug application (ANADA) approvals, one new drug application (NDA) approval, one significant supplemental ANDA new product approval and two tentative ANDA approvals.
  • Akorn’s R&D organization submitted 18 ANDA filings and one NDA filing to the FDA for approval during 2015.
  • Akorn launched 12 new products in 2015, representing a combined IMS annual market size of $577 million.
  • Akorn completed the operational integrations of Hi-Tech Pharmacal Co., Inc. and VersaPharm, Inc. and closed the acquisition of a sterile ophthalmic manufacturing facility in Hettlingen, Switzerland during the year.
  • Akorn invested in its organizational capital in 2015, significantly expanding its accounting and finance organization, manufacturing and operations leadership and commercial infrastructure.

“I am pleased to announce our solid 2015 financial performance with record revenue and cash flow,” said Raj Rai, Akorn’s Chief Executive Officer. “Our strong financial performance is directly attributable to our disciplined acquisition strategy and robust pipeline initiatives. I would like to thank all our employees in making 2015 a successful year for Akorn. In our ongoing efforts to strengthen our organization, we have made deliberate investments in human capital throughout 2015 to support both short- and long-term growth as well as our operational objectives.”

Rai added, “We have transformed Akorn into a well-diversified specialty generics platform with a solid pipeline and growth opportunities. I am excited about the long-term prospects of our business as we look forward to the next phase of our growth.”

Restatement Update

It remains Akorn’s goal to file its restated 2014 financial information and delinquent 2015 financial results with the U.S. Securities and Exchange Commission (SEC) by May 9, 2016. Both the restated 2014 and delinquent 2015 financial results are expected to be filed with the SEC in one comprehensive Form 10-K.

As previously disclosed, Akorn estimates that the overstatement to full year 2014 net revenue and pretax income from continuing operations is approximately $35 million. These estimates are subject to the completion of the audit of the restated financial statements for the year ended December 31, 2014.

“Since joining Akorn late last year, my top priorities have been completing our restatement process, regaining financial reporting compliance and addressing our material weaknesses over financial controls and reporting,” said Duane Portwood, Akorn’s Chief Financial Officer. “Our internal 2014 restatement work is complete and I am pleased with the progress to date with respect to the audit effort underway as we move toward our goal of becoming current with our financial reporting by May 9. Furthermore, we have redesigned and improved the internal controls surrounding our significant accounting and financial reporting areas and I look forward to resolving our material weaknesses as soon as practicable.”

Summary Preliminary Financial Results for the Year Ended December 31, 2015

Akorn estimates net revenue of approximately $985 million and adjusted EPS of $1.93 (GAAP EPS of $1.14) for the twelve months ended December 31, 2015. Adjusted EBITDA for full year 2015 is estimated to be $455 million and cash flow from operations is estimated to be approximately $345 million. Akorn’s 2015 results are subject to audit by the Company’s independent registered public accounting firm. Additional full year 2015 preliminary financial metrics are detailed in Table 1 and a reconciliation to Akorn’s previous 2015 guidance is detailed in Table 5.

Akorn Expects 2016 Revenue Growth of Approximately Eight Percent and Non-GAAP Adjusted EPS Growth of At Least Nine Percent from Full Year 2015 Results

A tabular presentation of Akorn’s 2016 financial guidance is presented in Table 1 below. Akorn’s 2016 guidance contemplates adjusted non-GAAP expense items that present an analysis of Akorn’s continuing operations used to guide management decisions. Full reconciliations of GAAP to non-GAAP financial guidance metrics are available in Tables 6 – 11 at the end of this release.

Table 1: Akorn Preliminary 2015 Financial Performance and 2016 Financial Guidance

values in millions, except percentages and per-share amounts  Preliminary 2015
Financial Performance
 
   2016
Financial Guidance 
 Net revenue approx. $985 $1,060 – $1,080
 GAAP gross margin percentage approx. 60.2% 61% – 62%
 Adjusted gross margin percentage (non-GAAP) approx. 60.8% 61% – 62%
 GAAP SG&A expense approx. $261 $226 – $231
 Adjusted SG&A expense (non-GAAP) approx. $123 $133 – $138
 GAAP R&D expense approx. $41 $44 – $47
 Adjusted R&D expense (non-GAAP) approx. $38 $43 – $46
 GAAP non-operating expense approx. $62 approx. $53
 Adjusted non-operating expense (non-GAAP) approx. $50 approx. $41
 GAAP income tax rate approx. 37% 37% – 38%
 Adjusted income tax rate (non-GAAP) approx. 37% 37% – 38%
 GAAP diluted earnings per share     $  1.14        $1.56 – $1.66
 Adjusted diluted earnings per share (non-GAAP)     $  1.93        $2.10 – $2.20
 Fully diluted shares outstanding approx. 125.7 approx. 126
 Adjusted EBITDA (non-GAAP) approx. $455 $485 – $505
 Capital expenditures approx. $33 $70 – $95

Important assumptions underpinning Akorn’s 2016 guidance include the following:

  • No new product approvals are included in guidance. Akorn’s guidance only contemplates launches of products approved by the FDA as of March 22, 2016 along with the full year contribution of products launched in 2015.  Products that are not yet approved by the FDA are not included in Akorn’s 2016 financial guidance.
  • Competition on existing products. Akorn expects incremental competition on Ephedrine Sulfate Injection, USP and Nembutal® Sodium Solution.
  • Several incremental investments are included in adjusted 2016 guidance. Akorn’s adjusted 2016 guidance includes incremental investments in manufacturing optimization and serialization initiatives, research & development initiatives, and investment in Akorn India that result in an approximate $0.10 per share impact to the Company’s 2016 adjusted non-GAAP EPS expectations.

Capital Position, Leverage and Liquidity

Reflective of Akorn’s voluntary partial prepayment of $200 million of its outstanding term loan facility on February 16, 2016, the Company’s unaudited liquidity position at December 31, 2015 and February 29, 2016 is detailed in Table 2 below. As ofDecember 31, 2015 and February 29, 2016, there was approximately $43 million outstanding in convertible notes due June 2016 included in Akorn’s short- and long-term debt balances. As previously disclosed, Akorn intends to settle its outstanding convertible notes in shares of Akorn common stock upon conversion or at maturity on June 1, 2016.

Akorn ended 2015 with a net debt to adjusted EBITDA ratio of approximately 1.6x and, absent any significant business development transactions, expects to end 2016 with a net debt to adjusted EBITDA ratio of approximately 1.0x. Akornexpects to generate between $225 million and $250 million in cash from operations in 2016.

Table 2: Preliminary Cash and Unaudited Debt Balances

    
 Unaudited; values in millions December 31, 2015  February 29, 2016 
 Cash & cash equivalents $346.2  $226.3 
 Short- and long-term debt $1,074.0  $874.7 

R&D Update

As of February 29, 2016, Akorn had 87 ANDAs pending at the FDA, representing approximately $9.3 billion in annual branded and generic market value according to IMS Health. Akorn has over 65 additional ANDAs in various stages of development, representing approximately $12 billion in annual branded and generic market value according to IMS Health.

Akorn has received correspondence in the form of Complete Response Letters or Information Requests covering approximately 50 pending ANDAs, indicating to Akorn that the FDA is actively reviewing these filings. While subject to FDAreview, Akorn expects that it could receive approval for up to half of these filings within the next 12 months; the annual market value of these near-term approvable filings is approximately $1 billion according to IMS Health.

In 2015 Akorn and its development partners received 11 ANDA product approvals, one NDA product approval and two tentative ANDA approvals from the FDA along with a significant new product supplementary ANDA approval for Myorisan™ 30mg Capsules.  In addition, Akorn received two abbreviated new animal drug application (ANADA) product approvals for veterinary products in 2015.

For the year ended December 31, 2015, Akorn filed 18 ANDAs and one NDA with FDA.

Table 3: Status of Akorn Pending ANDA Filings, February 29, 2016

               
 Filed Age Tentative<24 months24-36 months>36 monthsTotal
 values in millions USD  Count  Value*   Count  Value*   Count  Value*   Count  Value*   Count  Value* 
 OphthalmicBrand5637 4414 136 63,267 164,354
  Generic 3225 18 7290 11523
 InjectableBrand1494 61,612  3329 102,436
  Generic 10481 7284 8268 251,032
 TopicalBrand 222  131 353
  Generic 6380 377  9458
 OtherBrand 131   131
  Generic 5231 380 452 12362
 Total 61,131 373,398 15484 294,237 879,250
                 

*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended January 31, 2016 and excludes any trade and/or customary allowances and discounts. The IMS market value is not a forecast of Akorn’s potential future sales. Value columns and rows may not add due to rounding.

Product Launch Update

In 2015, Akorn launched 12 new products or product forms, representing approximately $577 million in annual branded and generic market value according to IMS Health. Akorn has launched two products so far in 2016.

Table 4: 2015 Product Launches

       
  Product   Type of Launch   Launch
Month 
  IMS Estimated
Market Value* 
  Amantadine Oral Suspension, USP, 10mL Unit Dose Cups  Line Extension January 2015 $4.2 
  Dronabinol Capsules, USP CIII, 2.5mg, 5mg and 10mg  New Product February 2015 $119.6 
  Ethambutol Tablets 100 mg and 400 mg  Re-Launch March 2015 $6.6 
  Dexmedetomidine Injection, 200 mcg/2 mL, single-use vial  New Product March 2015 $59.1 
  Acetaminophen & Codeine Phosphate Oral Solution, USP CV, Unit Dose Cups  Line Extension March 2015 $0.7 
  Phenylephrine HCl Ophthalmic Solution, USP, 2.5% and 10%  Re-Launch March 2015 $39.1 
  Acetylcysteine Injection, 200 mg/mL single-use vial  New Product July 2015 $28.3 
  Promethazine HCl and Phenylephrine HCl Syrup  New Product August 2015 $8.3 
  Promethazine HCl, Phenylephrine HCl and Codeine Phosphate Syrup CV  New Product August 2015 $13.1 
  MyorisanTM (isotretinoin) 30mg capsules Line Extension September 2015 $223.8 
  Doxercalciferol Injection Solution, 4 mcg/2 mL, 2 mL single-use vial  New Product September 2015 $69.1 
  Tobramycin Injection, USP 40 mg/mL in 2 ml and 30 mL multi-dose vials  New Product December 2015 $4.9 
  Buprenorphine and Naloxone Sublingual Tablets CIII  New Product January 2016 $260.9 
  Cyclopentolate HCl 0.5% Ophthalmic Solution, USP  Line Extension March 2016 $0.7

*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended January 31, 2016 and excludes any trade and/or customary allowances and discounts. The IMS market size is not a forecast of Akorn’s potential future sales.

Information Regarding Preliminary Unaudited Results

The financial results presented in this release are preliminary and may change subject to the completion of the audit by Akorn’s independent registered public accounting firm. These preliminary results include calculations and projections that have been prepared by Akorn management and there can be no assurance that Akorn’s actual financial results will not materially differ from the preliminary unaudited financial data presented herein. In addition, the preliminary unaudited financial data presented for 2015 is summary in nature and should not be viewed as a substitute for the full financial information prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which is expected to be filed with the SEC at a later date. Please see the “Restatement Update” and “Forward Looking Statements” sections of this press release for further information. (Original Source)

Shares of Akorn jumped 12% in pre-market trading. AKRX has a 1-year high of $57.10 and a 1-year low of $17.57. The stock’s 50-day moving average is $24.31 and its 200-day moving average is $30.05.

On the ratings front, Akorn has been the subject of a number of recent research reports. In a report released yesterday, Nomura analyst Shibani Malhotra maintained a Buy rating on AKRX, with a price target of $42, which implies an upside of 124.4% from current levels. Separately, on March 18, Deutsche Bank’s Gregg Gilbert maintained a Buy rating on the stock and has a price target of $33.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Shibani Malhotra and Gregg Gilbert have a total average return of -8.7% and -3.9% respectively. Malhotra has a success rate of 39.3% and is ranked #3512 out of 3757 analysts, while Gilbert has a success rate of 33.7% and is ranked #3288.

The street is mostly Bullish on AKRX stock. Out of 7 analysts who cover the stock, 6 suggest a Buy rating and one recommends to Hold the stock. The 12-month average price target assigned to the stock is $45.00, which implies an upside of 140.4% from current levels.

Akorn Inc manufactures and markets a full line of diagnostic and therapeutic ophthalmic pharmaceuticals as well as niche hospital drugs and injectable pharmaceuticals.