Akorn, Inc. (NASDAQ:AKRX), a leading specialty generic pharmaceutical company, today provided an update on the company’s ongoing restatement process as well as a business and financial guidance update.
Audited 2014 Financial Statements Expected to Be Filed in First Quarter 2016
Akorn continues to work to complete the previously disclosed restatement of its 2014 quarterly and audited annual financials and it is the company’s goal to file restated 2014 financial results with the SEC by the end of the first quarter of 2016.Akorn’s estimate of the errors related to the understatements of rebates and other sales allowances, as disclosed on August 10, 2015, is estimated to have resulted in an overstatement to net revenue and pretax income from continuing operations slightly above the upper end of the $20 million to $35 million range initially estimated. These estimates are based on management’s ongoing assessments and are subject to the completion of the restatement and the audit of the restated financial statements for the year ended December 31, 2014.
Akorn Will Seek Another NASDAQ Listing Extension
As previously disclosed, on July 15, 2015, the Listing Qualifications Staff of The NASDAQ Stock Market LLC grantedAkorn’s request for an extension through November 9, 2015 to file the Company’s delinquent periodic reports with the SECand thereby evidence full compliance with all applicable requirements for continued listing on The NASDAQ Global Select Market. Following Akorn’s notice to the Staff that Akorn did not expect to timely satisfy the terms of the Staff’s extension, the Staff formally notified the Company on November 3, 2015 that, in accordance with Listing Rule 5250(c)(1), the Company’s securities would be subject to suspension and delisting unless the Company timely requests a hearing before the NASDAQ Listing Qualifications Panel.
The Company will request a hearing before the Panel to address the Staff’s November 3, 2015 determination. The Panel will separately notify the Company once it has made a determination regarding the Company’s request for an extension of the stay. While the Company is diligently working to regain compliance with the NASDAQ Filing Requirement, there can be no assurance that the Panel will grant the Company’s request for continued listing pending its return to compliance. Pursuant to the Listing Rules, the Panel has the discretion to grant the Company an extension through early May 2016.
Akorn expects that the previously disclosed independent investigation commissioned by the Audit Committee of the company’s Board of Directors will be completed by the end of 2015.
The Chicago Regional Office of the Securities and Exchange Commission (SEC) is conducting an investigation regarding the previously disclosed restatement, internal controls and other related matters. Additionally, the United States Attorney’s Office for the Southern District of New York (USAO) has requested information regarding these matters. Akorn has been furnishing requested information and is fully cooperating with the SEC and USAO.
Raj Rai, Akorn’s Chief Executive Officer, commented, “We are working diligently with our external auditors and advisors toward resolution of the previously disclosed restatement of our 2014 financials. We have initiatives underway to remediate and strengthen our financial controls and I am pleased to report that we continue to deliver on our operational and financial objectives for 2015. We plan to provide you with updates when additional information is available.”
Updated 2015 Financial Guidance
Based on preliminary results for the first three quarters of 2015, Akorn updates its 2015 non-GAAP revenue and non-GAAP net income per diluted share (EPS) projections to project 2015 non-GAAP revenue of between $970 and $980 million and non-GAAP EPS of between $1.93 and $1.98. The Company also updates expected non-GAAP gross margin, non-GAAP SG&A expense, R&D expense and other items as detailed in Table 1 below. Akorn’s results for the first three quarters of 2015 have not been reviewed by external auditors.
Akorn’s 2015 guidance contemplates adjusted revenue and expense items that are non-GAAP measures the Company believes present a picture of Akorn’s continuing operations. A full reconciliation of GAAP to non-GAAP guidance metrics is presented in Tables 5, 6 and 7 at the end of this release.
Table 1: Revised 2015 Financial Guidance, November 4, 2015
|values in millions, except per-share amounts||Initial 2015 Outlook|
February 26, 2015
|Revised 2015 Outlook|
November 4, 2015
|Total Revenue (Non-GAAP)||$960 – 980||$970 – 980|
|Total gross margin percentage (Non-GAAP)||62% – 63%||61.5% – 62%|
|SG&A expense (Non-GAAP)||$107 – 112||approx. $118|
|R&D expense||$45 – 50||approx. $40|
|Non-operating expense (Non-GAAP)||$52||approx. $52|
|Income tax rate||37%||37%|
|Adjusted net income per diluted share (EPS, Non-GAAP)||$1.88 – 1.98||$1.93 – 1.98|
|Fully diluted shares outstanding||127||approx. 126.5|
|Capital expenditures||$50 – 60||$35 – 40|
Akorn’s unaudited liquidity position for the three quarters ending March 31, 2015, June 30, 2015 and September 30, 2015 is detailed in Table 2 below.
Table 2: Unaudited Cash, Debt and Share Balances
|Unaudited; values in millions||March 31, 2015||June 30, 2015||September 30, 2015|
|Cash & Equivalents||123.5||257.1||314.5|
|Short- and Long-Term Debt||1,120.9||1,080.7||1,077.5|
|Fully Diluted Shares Outstanding||125.4||125.9||125.9|
At October 31, 2015, Akorn had 78 abbreviated new drug applications (ANDAs) pending at the U.S. Food & Drug Administration (FDA), representing approximately $9.8 billion in annual branded and generic market value according to IMS Health. Akorn has 80 additional ANDAs in various stages of development, representing approximately $12.4 billion in annual branded and generic market value.
As of October 31, 2015, Akorn has received a total of 31 target action dates (TADs) for pending ANDAs in the company’s development portfolio. A TAD is indicative of an internal goal of action at FDA and should not be construed as an anticipated approval date for a generic filing.
In 2015 Akorn and its development partners have received 11 product approvals and one tentative approval for human products. Akorn also received two veterinary approvals through the first three quarters of 2015.
Through October 31, 2015, Akorn filed four ANDAs and one NDA with FDA and acquired two filed ANDAs. The Company expects to file approximately 14 additional ANDAs by the end of 2015. In addition to the two acquired pending ANDAs,Akorn acquired five additional products in development.
Table 3: Status of Akorn Pending ANDA Filings, October 31, 2015
|Filed Age||Tentative||<24 months||24-36 months||>36 months||Total|
|values in millions USD||Count||Value*||Count||Value*||Count||Value*||Count||Value*||Count||Value*|
|*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended August 31, 2015 and excludes any trade and/or customary allowances and discounts. The IMS market value is not a forecast of Akorn’s potential future sales.|
Product Launch Update
To date in 2015, Akorn has launched 11 new products or product forms, representing approximately $586 million in annual branded and generic market value according to IMS Health.
Table 4: 2015 Product Launches
|Product|| Type of|
| IMS Estimated|
|Amantadine Oral Suspension, USP, 10mL Unit Dose Cups||Line Extension||January 2015||4.6|
|Dronabinol Capsules, USP CIII, 2.5mg, 5mg and 10mg||New Product||February 2015||121.5|
|Ethambutol Tablets 100 mg and 400 mg||Re-Launch||March 2015||6.9|
|Dexmedetomidine Injection, 200 mcg/2 mL, single-use vial||New Product||March 2015||67.3|
|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||34.7|
|Acetylcysteine Injection, 200 mg/mL single-use vial||New Product||July 2015||28.3|
|Promethazine HCl and Phenylephrine HCl Syrup||New Product||August 2015||8.8|
|Promethazine HCl, Phenylephrine HCl and Codeine Phosphate Syrup CV||New Product||August 2015||15.6|
|MyorisanTM (isotretinoin) 30mg capsules||Line Extension||September 2015||211.1|
|Doxercalciferol Injection Solution, 4 mcg/2 mL, 2 mL single-use vial||New Product||September 2015||86.0|
|*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended August 31, 2015 and excludes any trade and/or customary allowances and discounts. The IMS market size is not a forecast of Akorn’s potential future sales.|
As previously disclosed, in March 2015, putative class action plaintiff Solomon Yeung filed suit in the Federal District Court, Northern District of Illinois against Akorn, Inc., Rajat Rai, Timothy Dick and Bruce Kutinsky, alleging defendants violated Rules 10b-5 and 20(a) of the 1934 Exchange Act. In May 2015, putative class action plaintiff Mikolaj Sarzynski filed an additional suit in the same Court, alleging that, in addition to the claims in the Yeung action, the Company made false or misleading statements regarding, and failed to disclose details about, errors it made in calculating chargeback reserves and understatements of rebates and other sales allowances, which caused the Company’s revenue to be overstated. In August 2015, the same Court granted motions to consolidate these two cases.
On August 19, 2015, a derivative action was filed in the Court on behalf of the Company, naming the Company’s Board of Directors and certain of its current and former officers as individual defendants and the Company as a nominal defendant. The complaint alleges breach of fiduciary duty, corporate waste, gross mismanagement, unjust enrichment and violations of the securities laws by the individual defendants based on allegations relating to the Company’s restatement of its 2014 financial statements.
The Company’s Board of Directors also has received shareholder demands for legal action to be taken against certain of the Company’s directors and officers based on alleged breaches of fiduciary duties and other misconduct in connection with the restatement. Akorn’s Board of Directors formed a special committee to conduct an inquiry into the demand allegations and to provide its conclusions and recommendations to the Board. (Original Source)
Shares of Akorn closed today at $26.61, down $0.54 or 1.99%. AKRX has a 1-year high of $57.10 and a 1-year low of $19.08. The stock’s 50-day moving average is $30.00 and its 200-day moving average is $40.39.
On the ratings front, Akorn has been the subject of a number of recent research reports. In a report issued on September 29, Nomura analyst Shibani Malhotra initiated coverage with a Hold rating on AKRX and a price target of $43, which implies an upside of 58.3% from current levels. Separately, on September 25, Leerink Swann’s Jason Gerberry reiterated a Hold rating on the stock and has a price target of $41.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Shibani Malhotra and Jason Gerberry have a total average return of 24.8% and 11.8% respectively. Malhotra has a success rate of 78.6% and is ranked #239 out of 3824 analysts, while Gerberry has a success rate of 57.4% and is ranked #440.
Akorn Inc manufactures and markets a full line of diagnostic and therapeutic ophthalmic pharmaceuticals as well as niche hospital drugs and injectable pharmaceuticals.