Good morning, everyone, and welcome to ANI's Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this call may be recorded. It is now my pleasure to turn today's program over to Lisa Wilson, Investor Relations for ANI Pharmaceuticals. Ms. Wilson, please go ahead.

Thank you, Christy. Welcome to ANI Pharmaceuticals Q2 2020 Earnings Results Call. This is Lisa Wilson of In-Site Communications, Investor Relations for ANI. With me on today's call are Patrick Walsh, Interim President and Chief Executive Officer; and Stephen Carey, Chief Financial Officer of ANI. You can also access the webcast of this call through the Investors section of the ANI website at anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI Pharmaceuticals management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 6, 2020. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Patrick Walsh.

Thank you, Lisa. Good morning, everyone, and thank you for joining our call today. The COVID-19 pandemic has affected all of us. It has altered our personal lives and has had an impact on our industry. I'd like to personally express my appreciation for our dedicated employees and contract manufacturing network and in our ability to continue supply of medicines critical to patients and caregivers. Let me first start off with a brief overview of our business, including second quarter events and the ways in which ANI is adapting to the pandemic-related headwinds. In the second quarter, both ANI and the broader pharmaceutical industry experienced depressed overall demand for prescription drugs, reflecting declining physician visits, lower hospital admissions across the country. And while our business felt those dampening effects, we are proud of the way we have managed through these challenges. We've kept our manufacturing facilities open, ensuring continuous supply of our medicines, and of course, we've worked tirelessly to keep our employees safe. That said, our products have continued to perform well, albeit at lower levels due to COVID. While some of this weakness is likely to persist into the third quarter, we do anticipate that our portfolio will begin to rebound to pre-COVID levels by year-end, assuming resumption of normal patient-physician activity and there's not a significant second wave of COVID. We reported second quarter 2020 net revenues of $48.5 million, adjusted non-GAAP EBITDA of $15.4 million and adjusted non-GAAP diluted earnings per share of $0.69. During the second quarter, we continued to expand our commercial portfolio. We announced our sixth generic launch of the year, Mexiletine Hydrochloride Capsules. The annual U.S. market for this product is about $16 million, and this was the first product launch of an ANI product at our Oakville, Canada site. In early…

Thank you, Pat, and good morning to everyone on the call. This morning, I will focus on high-level comments for the quarter. Net revenues for the second quarter of 2020 were $48.5 million, down $5.9 million or 11% from prior year levels principally driven by significant industrywide declines in prescription activity resulting from the COVID-19 pandemic. Net revenues for generic pharmaceutical products were $33.4 million during the second quarter, down 8% from the same period in 2019. This compares to an overall year-over-year decline in total industrywide generic prescriptions of 6%. On a product basis, net declines were driven by decreases in Ezetimibe-Simvastatin, EES, Vancomycin and EEMT, tempered by the January 2020 addition of the Amerigen portfolio and the September 2019 launch of Vancomycin oral solution. Net revenues for branded pharmaceutical products were $10.6 million during the second quarter compared to $14 million for the same period in 2019. Our cost of sales, excluding depreciation and amortization, increased by $5.1 million to $20.7 million in the second quarter of 2020 primarily due to $1.4 million in cost of sales, representing the excess of fair value over cost for inventory acquired in the Amerigen acquisition, coupled with an increase in sales of products subject to profit-sharing arrangements. Excluding the $1.4 million of Amerigen accounting impact, cost of sales as a percentage of net revenues increased to 40% during the second quarter from 29% in the same period in 2019. Research and development expenses increased in the second quarter of 2020 to $3 million compared to $5.8 million in the second quarter of 2019 primarily due to nonrecurrence of $2.3 million of expense related to in-process research and development acquired from Coeptis Pharmaceuticals in the second quarter of 2019 and a decrease in expense related to the Cortrophin recommercialization project. The impact…

[Operator Instructions] And your first question is from Brandon Folkes of Cantor Fitzgerald.

Hi, thanks for taking my questions. So first, can you provide some color on your decision to forgo a Type A meeting on Cortrophin? And what gave you confidence yet to take that strategy? And secondly, maybe just on strategy. Can you just talk a little bit more about the strategy going forward? Should we expect to launch more of the ANDAs you have previously acquired with this Tobin acquisition strategy? Sounds like it, but just any additional color there? And then lastly, is it possible to just quantify the benefits from the Amerigen transaction?

This is Pat Walsh. I can take, Steve, if you want, I can take the first question about the forgoing of the Type A meeting. So it was pretty simple. When you looked at the two meetings leading up to or the two interactions with the agency leading up to the Refusal to File, the data was quite clear of what the FDA expected us to do. And we didn't really feel needed to go back and ask again. The information has been provided clearly to us upfront. So when we looked at the internal and external resources applied to this, we felt like we knew what the game plan needed to be and want to work on getting that done. As we mentioned, we're well over 90% complete of the items identified, either within the previous correspondence or with the gap assessment team's analysis and feel very confident that we can go forward in the time line to refile as described. I think, Steve, maybe if you want to handle the Amerigen transaction? In terms of the other question regarding the acquisition status, I think we'll continue to aggressively look at other opportunities. When you look at the there's a solid team here in place that can digest and continue to acquire the kind of assets we're looking for. The consolidating market is rich right now in opportunities. In fact, I've never seen a more target-rich environment for this particular industry. And we have the ability to scale in all of the all three of our sectors, whether it be branded, generics or contract services. So I feel pretty positive about the opportunities for additional acquisition targets. Steve, do you want to take the Amerigen question?

Yes, sure, sure. Thanks, Pat. Yes, so as you know, Brandon, we don't specifically speak to the quantifying the actual sales figures for the Amerigen portfolio. But as both Pat and I mentioned, in the first six months of our ownership of that portfolio, the sales and gross profit performance has been solidly tracking to our expectations and slightly ahead of our expectations for the first six months. It's been a great transaction in terms of diversifying our generic portfolio. I think directionally, at this point in time, it's added approximately 12 or 13 commercial products to the portfolio. And we have a good handful of products in the pipeline that we continue to develop and we look forward to introducing in the future. So it was a very nice tuck-in transaction at the right time for the company, and we've been pleased to date. All of the operational activities that need to occur in terms of switching over ownership, sales and marketing, supply chain management, etc., all of that was largely completed in the first quarter. And so we were just able to leverage that in the second quarter. Unfortunately, in the backdrop of the COVID-19 destocking that occurred based upon total prescription activity declines during the quarter, but we look forward to the second half of the year to see the full strength of the Amerigen and more broadly speaking, the full ANI portfolio.

All right, thank you very much.

Thank you.

Our next question is from Dana Flanders of Guggenheim.

Great, thank you very much for the questions. My first one here is just with the consulting work done on Cortrophin, can you provide a little more detail on just the nature of how you are strengthening your filing? And so what were the deficiencies identified? And just any more color on what you were doing? And in that line of questioning, I noticed you said that there were some analytical data you plan to provide. Was that FDA requested? And would appreciate any color on what that data is. And then, Steve, I think in your prepared remarks, you mentioned a stronger second half. Can you provide some color on just what's driving that? I imagine a piece of it is a bounce back from COVID, but any launches and how you're thinking about the organic portfolio ex Amerigen would be helpful.

Dana, to answer your question regarding was the analytical data that has been added requested by the FDA, the answer to that is no. That was derived from the leadership team's assessment of what we could do to further bolster the application. To your question regarding specifics on what's been done to bolster, I think when you look at our Refusal to File for almost any application, you're going to see most of the information revolving around what's called the CMC section or the chemistry, manufacturing and controls, which would encompass the analytical manufacturing-related process for submission of a product like this. So that's really where we spent the majority of our time and effort. It is we haven't gone public with any detail. Obviously, from a competitive standpoint, you want to keep your application quiet from that standpoint. And also, while the interactions are going ongoing with the FDA, we'd obviously not do that as well. So I would tell you that there's been a significant amount of work and progress. I've been personally involved in this process with the team. We've hired on a prominent group, as we described, who's had a significant experience in these very type of products and feel very comfortable that we'll have an outstanding application to put forward with the FDA.

Great. And to answer your second question, Dana, and thank you for the questions. Yes, a few inputs on the stronger second half. So, the foundational piece of it, for sure, would just be the strength of the portfolio operating in a non-COVID-19 type backdrop as you're hearing on all of your industry calls and pharma client calls, whether it's framed out as a decline driven by destocking in the second quarter or a decline driven by softness in script activities, right? When we look at IMS data for the second quarter versus prior year, total scripts for generics were down 6% year-over-year and for brands, about 10% year-over-year. And so that is the single biggest factor in terms of the softness of the top line in the second quarter. And well, obviously, there's no crystal ball in terms of what the second half is going to bring. If we presume that there's less disruption or essentially no disruption to patient-physician activity, we would look to be delivering stronger quarters just based upon that. And then you layer on top of the fact that our operating plan and our previous guidance before it was withdrawn, always was built upon sequential growth throughout the course of 2020. And that was driven by product launches and the biggest of which was the continued uptake of our Vancomycin oral solution product, which was launched back in the fourth quarter of 2019. Now that product in particular, while it was called out as a favorable in our year-over-year comps, did get set back in the second quarter as that product, the main indication is for C. diff, which is largely comes out of folks being in the hospital. And so the Vancomycin market took kind of an outsized step backwards in the second quarter as folks pushed off elective procedures. So, we look to see that product start to post sequential gains as well in the second half, again driven with an assumption that activity returns to normal, elective procedures return to normal, etc. And then I think you had a third leg of your question on the organic portfolio. And clearly, the big three products that we talked about last year that took competitive hits, Ezetimibe-Simvastatin, EES and EEMT, we will start to lap those competitive hits as the second half continues. So the Ezetimibe-Simvastatin losses occurred around mid-year of last year. So we're kind of we'll start lapping that impact in the third quarter, and EES was a little bit later, kind of the end of third quarter and beginning of fourth quarter of 2019. So we'll lap those comps in the fourth quarter. And EEMT was the latest of the 3. So you'll start to see relative performance as compared to prior year comps start to improve as those impacts get further in the rearview mirror.

Dana, further to Steve's point, I've been in the pharmaceutical industry in my entire career, and I've never seen in a in one quarter such a significant drop in hospital and alternate site drug usage across the board. It wasn't a phenomenon with ANI. It was obviously across the industry. There were major variations in inventory management within that distribution network. The alternate site and surgery centers, just, as you know, simply closed down for the time being, and there were major alterations in traditional buying behavior. We did start to see a little bit of a reset to that here recently. And certainly, in July, gives us some optimism. And we're hearing a little more that the volume pull-through is starting to return back to a normal load. So that's why we're a little more optimistic on a go-forward basis, but this has been just a very, very unusual quarter to say the least.

We have no further questions at this time. I will turn the call back over to Pat Walsh for any additional or closing remarks.

Well, we thank everybody for your time today. And certainly, as you've heard, COVID-19 has affected all of us, and I'm sure with our own lives, personally and professionally. Despite the pandemic's impact on our demand, we continue to operate our business, and we really look forward to an optimistic future. We welcome Nikhil and Jeanne and Tony, our new CEO and new Board of Directors, who we feel no doubt help us to drive growth and achieve the full value of our assets and continue to expand and grow the ANI business. So with that, we'll close the call, and we thank you for your support of our company.

Thank you.

Thank you. End of Q&A:

This does conclude ANI's second quarter 2020 earnings conference call. You may disconnect your lines at this time and have a wonderful day.