ANI Pharmaceuticals (NASDAQ:ANIP) Q4 2019 Earnings Call

0:00 Good morning, everyone, and welcome to ANI's fourth quarter 2019 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touch-tone phone. If you would like to withdraw your question, please press the pound key on your touch-tone phone. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Mr. Arthur Prisbell. Please go ahead, sir.

0:34 Thank you, Lori. Good morning, everyone. Welcome to ANI's earnings conference call for the full year and fourth quarter 2019. My name is Art Prisbell. I'm the CEO. Joining me today is Stephen Carey, our Chief Financial Officer. Before we begin, I want to refer everyone to the forward-looking statements language in this morning's press release, and ask each of you to review it carefully as important context for this conference call. Discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today. ANI reported full-year 2019 net revenues of $206.5 million.

1:22 Adjusted Non-Gap Gross Profit of $146.9 million, or 71% of net revenues, and Adjusted Non-Gap EBITDA of $83.2 million, or 40% of net revenues. Our 2019 net revenues increased by 2.5%, gross profit dollars increased by 9%, and both are record amounts for ANI. Our net revenues and gross profit on three of our generic products were significantly impacted by competitive price erosion in the third and fourth quarter of 2019. The resulting impact was an annual estimated decline of $21.7 million in net revenues and an annual estimated decline of $21 million in gross profit.

2:09 In 2020, we expect to offset the impact of these declines through the recent launch of vancomycin oral solution, and the subsequent January 2020 acquisition of Amerigens Marketed Products and Pipeline. For 2020, we are providing midpoint net revenue guidance of $218 million, an increase of 6%, and adjusted non-GAAP EBITDA guidance of $83 million, the same number as compared to 2019. Our 2020 guidance does not include any effect from additional acquisitions, and does not include any effect from the potential launch of Cortrophin Gel. Steve will provide you with additional commentary on our financial results.

2:55 Much of ANI's growth has been and will continue to be achieved through acquisitions. We recently acquired Amerigyn's U.S. assets for $52.5 million, which we funded entirely from cash on hand. The acquisition included 23 generic products, 12 products are currently commercialized and 11 products are pipeline drugs. The acquisition was immediately accretive to revenues and gross profit and has since expanded our commercial generic drug portfolio to 47 products. Our generic pipeline now includes 118 products with a combined annual market size of $7 billion based on data from Evacua. Over the last several years, we have completed 15 generic drug deals for a total of $135 million.

3:45 In 2019 alone, these deals contributed $96 million in generic drug revenues. Additionally, most of our branded revenues have been acquired in eight deals for a total of $181 million, not including the $75 million for Cortrofen Gel, our largest pipeline opportunity, which is rapidly approaching its targeted regulatory filing date. From 2015 to 2019, the cumulative branded revenues from these deals has been approximately $260 million, yielding gross margins of better than 90% with minimal SG&A expense. As an important part of our strategy, ANI intends to continue to acquire assets from time to time.

4:34 The current environment for generic drugs, such as solid oral drugs, that are sold through the three consortiums who control 90% market share remains highly volatile. In addition to simply having too many generic manufacturers chasing too few customers, the industry is littered with companies that are over-levered and under-capitalized, leading to desperation in the marketplace that unduly pressures generic profit margins more than ever before. Consolidation within the generic drug industry must happen before real pricing stability can be achieved amongst those companies doing business with the three consortiums. ANI will continue to explore tucking and acquisition opportunities in this space that meet our strategic and valuation criteria.

5:22 Nonetheless, as a result of the highly competitive generic market created by the three consortiums, ANI also intends to pivot. and explore acquisition opportunities in areas such as injectables and specialty drugs that can provide both growth opportunities and risk diversification for our business model. In other words, drug products that are not sold through these three consortiums. You have seen us pursue this strategy over the past year as we have expanded our injectable pipeline, launched vancomycin oral solution, a long-term care and hospital product, and launched Bertilium Injection, a critical hospital drug. Our biggest opportunity in this effort is, of course, Cortofen Gel.

6:12 We are now approximately 30 days away from filing the Supplemental MDA, known as a Prior Approval Supplement, or PAS, for our Cortofen Gel drug product. This has been our targeted filing date for some time now, and all activities continue to advance as planned. Recall that Cortofengel is an already approved NDA, last marketed in the 1990s, that requires a prior approval supplement by the FDA in order to re-commercialize the drug. The supplemental NDA regulatory filing is the result of approximately four years of development and an investment of over $100 million, $75 million to acquire the NDA, and over $25 million to advance the drug to filing.

6:59 The result of our development effort is a PAS filing that includes 36 analytical methods employed to characterize commercial-scale batches of cortrophin, active pharmaceutical ingredient. Several methods were validated from the approved NDA, and the new methods were employed as part of the modernization process to demonstrate an unparalleled, in-depth understanding of the quality and purity of ANI's corticotropin, active pharmaceutical ingredient. Another major component of the modernization effort was viral clearance validation, which was not required when this product was originally approved. ANI's corticotropin API manufacturing process has successfully completed viral clearance validation.

7:48 Corticotropin active pharmaceutical ingredient is known to be a complex mixture of peptides, primarily ACTH1 to 39. A&I has completed peptide mapping to identify the related peptides presence at greater than 0.1% in all process validation batches. The results demonstrate consistent peptide levels in all three commercial scale process validation batches and indicate a manufacturing process that is well controlled and consistent. All commercial scale batches of Corticotropin API have consistently met both the historical MDA specifications and also the new modernized API specifications. Results from these methods for all commercial-scale API batches have been assembled in a comprehensive API characterization package that ANI intends to file with the PAS.

8:45 The supply chain for quatropan gel from the slaughterhouse harvesting of pig pituitaries to the manufacturer of active pharmaceutical ingredient and finished dosage form product is entirely based in the United States, an intentional and integral part of our development effort. We have successfully manufactured three commercial scale process validation batches of finished dosage form cortrophin gel. All commercial scale batches of cortrophin gel have consistently met both the historical NDA specifications and also the new modernized drug product specifications. Two of the commercial scale batches are stable at six months real-time stability and have been analytically consistent with regards to quality and yield and have met all release specifications.

9:36 The third batch stability pull is today and we expect this batch to yield results consistent with the other two batches. Additionally, we have validated commercial drug product manufacturing by bracketing two batch sizes to facilitate flexibility in order to conserve API needs and manufacture only what is needed to meet market demand. Filter validation and media fill simulations have also been successfully completed. We remain on target to file the PAS in March 2020 and to address and meet the FDA briefing book comments from our types FDA meeting. Commercial launch activities for cortofan gel have already begun. In the third and fourth quarter of 2019, we began building inventory of both pig pitulataries and active pharmaceutical ingredient, and we invested $6.7 million against that effort. We will continue to invest in commercial launch inventory and estimate spending an additional $11.5 million in 2020 for pig pitulataries, API, and finished dosage form Cortofengel.

10:48 This inventory investment will allow us the opportunity to effectively compete for 50% market share upon launch. Our commercial launch strategy and business model for Cortofengel will be in place and implemented before and at the time of FDA approval. For competitive reasons, we do not intend to publicly describe our launch plan, but continue to be on record that ANI will offer a substantial discount for Cortrophin Gel as compared to Axar Gel market pricing. We strongly believe that the economics of drug pricing is an important dynamic that helps drive utilization and market share in today's pharmaceutical marketplace. As such, we continue to see the public outcry over the price of drugs, and more specifically Axar Gel. As recently as February 2020, a complaint was filed by Marietta, Georgia, that used the words exorbitant and unconscionable to describe Actar's price and even went so far as to accuse Malincrot of illegal kickbacks to doctors.

11:52 Whether true or not, this complaint is representative of continued public sentiment towards drug pricing and, in this instance, Actar gel. In the past, we have heard that synthetic corticotrophin products could potentially compete against our cortrophin gels. We now know that the two companies who were advancing synthetic versions have abandoned their development efforts. In a recent Assertio press release, recall they acquired the synthetic synactin product from Mallinckrodt in an FTC action. They announced they were abandoning their synactin development effort. This effectively leaves ANI with the only near-term opportunity to compete against Mallinckrodt's Axar gel.

12:37 as the drug did successfully back in the 1990s. For A&I, Cortrofen Gel remains a transformational opportunity. Not only can we potentially save healthcare hundreds of millions of dollars, but Cortrofen Gel can also potentially provide outside returns to our shareholders and help advance our business model. We believe that once commercial, Cortrofen Gel has the potential to provide annuity-like revenues for A&I because we believe that it is highly unlikely that a competitor could successfully commercialize a generic version. I have described Cortrop & Jell as a potential $200 million free cash flow opportunity for ANI. Let's examine the effect of half that number, $100 million, which would approximate 20% to 25% market share after ANI's ascribed discounted market price.

13:33 In addition to more than doubling our current free cash flow and likely our equity value, the incremental cash flow could be deployed in additional product development and business development activities to further broaden our commercial portfolio and leverage ANI's brand and generic infrastructure. Not too many pharmaceutical companies with ANI's current size and scale have a near-term opportunity like Quartrofen Gel. This is why we continue to describe our Quartrofen Gel opportunity as transformational. Lastly, a well-deserved hearty congratulations to our dedicated Cortropin gel development and regulatory individuals for all their efforts in helping to advance this important drug back to the healthcare market.

14:19 What a great job. I will now turn the conference call over to our CFO, Stephen Carey, who will provide you with more details on our financial results.

14:31 Thank you, Art, and good morning to everyone on the line this morning. For the year ended December 31st, 2019, A&I posted record net revenues, adjusted non-GAAP gross profit, and adjusted gross margin. Annual net revenues were $206.5 million, up $5 million or 2.5% from prior year. Adjusted non-GAAP gross profit reached $146.9 million, up 12.7 million, or 9%, and adjusted non-GAAP gross margins were over 71%. We generated $45.6 million of cash from operation and, importantly, continued to invest significant levels of cash back into the business while maintaining financial and balance sheet discipline.

15:26 adjusted non-GAAP EBITDA was off $1.2 million from prior year levels at $83.2 million, while adjusted EPS was down one cent at $5.06 per diluted share. As of the December 31st balance sheet date, we had $62.3 million of unrestricted cash, up $19.3 million from prior year, and up $2.6 million from September. This balance is net of $20.9 million of business development closed during the year in support of expanding our future pipeline opportunities and $6.6 million of capital expenditures made in support of advancing the capabilities of our three manufacturing plants.

16:18 On December 1st, we successfully refinanced the majority of our 118 $1.75 million convertible debt by exercising our option to borrow $118 million pursuant to the delayed draw term loan feature in our $265 million senior secured credit facility. The company experienced no equity dilution related to the maturity of the convertible note. Total net debt as of the balance sheet date was reduced to $125.2 million, representing 1.5 times net leverage and 2.3 times gross leverage on a trailing 12-month basis.

17:05 Looking forward, we expect to continue to reinvest our cash flow from operations in business development opportunities. In January of 2020, we used $52.5 million of cash from the balance sheet to acquire 12 currently commercialized and 11 pipeline opportunities from Amerigen. In addition, the $75 million revolver portion of our credit facility remains undrawn and provides us with flexibility in continuing to pursue further business development transactions in 2020. During 2019, we invested approximately $10.5 million in cortofan-related research and development as we continue to progress towards our March 2020 supplemental NDA filing.

17:57 In addition, we invested $6.7 million in prelaunch raw material and the API inventory in order to ensure that we are ready to launch cortofan into the market shortly after FDA approval of our filings. We currently anticipate investing upwards of $11.5 million behind additional prelaunch inventory in 2020. Please recall, as discussed on our third quarter earnings call, that these prelaunch inventories represent goods that will be utilized in saleable commercial batches upon FDA approval. Ordinarily, materials purchased for commercial sale would be capitalized as inventory, However, since we are dealing with a novel product, it must clear the supplemental NDA regulatory pathway with the FDA. GAAP dictates that such expenditures cannot be capitalized and must be expensed when purchased.

18:57 In order to shed transparency on the physical build of cortofan inventory, we have broken this activity out on a separate line item on the P&L. and disclosed further information in footnote number 13 to our financial statements. In addition to these Korshofen-related activities, during 2019, we invested $9.2 million in generic research and development. We also continue to invest behind and integrate our ANI Canada subsidiary and manufacturing facility, completing three tech transfers of ANI product into the plant with a fourth nearing completion, and recently securing new third-party business for our contract manufacturing capabilities.

19:47 These annual figures and accomplishments were achieved despite weathering significant fourth quarter competition against one of our most important generic franchises. During the fourth quarter, we took significant price reductions and shelf stock adjustments in order to defend our share of EES against two competitors that launched within days of one another in early November. These actions, coupled with continued volume declines in EDMT and Inderol LA, led net revenue for the three months ended December 31, 2019 to be down $9.2 million, or 16% from prior year, to $48 million. Resultant gross profit declines led to fourth quarter adjusted non-GAAP EBITDA of 17.4 million, down 4.8 million from prior year, and adjusted non-GAAP EPS of $1.08 per diluted share, down 24 cents from prior year.

20:55 In addition, during the fourth quarter, we decided to exit the methylphenidate ER market, driven by the fact that this market has become highly commoditized, leading to unattractive price dynamics. In addition, we voluntarily exited the generic reninidine market due to industry-wide FDA investigations of NDMA impurities found in the vast majority of drug product for this compound. In conjunction with these actions, we recognize the $3.5 million P&L charge to reserve for all remaining inventory related to these products. We have added this back for the purposes of our non-GAAP measures.

21:40 Excluding this charge, our fourth quarter cost of goods sold was 14.3 million or 30 percent of net revenues as compared to 20.1 million or 35 percent of revenues in the prior year period. These challenges occur during a period in which we are building momentum behind our September 2019 launch of vancomycin oral solution. This product provides an FDA-approved alternative to a market that is largely served by compounding pharmacies. It is not a typical AB-related generic launch, and therefore we currently anticipate revenues to ramp up over time as we build market awareness and product adoption through our virtual marketing and awareness campaign.

22:31 In addition, in December, we launched Bertilium Toxelate Injection, our first marketed injectable product, which is used in emergency room settings. In conjunction with this product, we launched a campaign to reintroduce this life-saving therapy to healthcare providers and hospital formulary decision makers. These products are prime examples of our increasingly diverse commercial product offering. Turning our attention to 2020 guidance, it is important to note that our guidance is exclusive of Cortropin revenues and prelaunch sales and marketing expenses. While we firmly believe that Cortropin has the potential to be the most meaningful product in the company's history, The timing of FDA approval and uptake of demand is inherently uncertain.

23:26 As such, 2020 guidance as presented today only reflects the remaining anticipated residual R&D spend and the cost to continue to build prelaunch commercial inventories. We will continue to add back the build of commercial inventories, and we will begin to add back prelaunch sales and marketing expenses in our 2020 actual non-GAAP results. Our 2020 net revenue guidance reflects the annualization of negative competitive impacts against three of our largest generic franchises. First, the loss of volume from a key customer of ezetimibe simvastatin, which began around mid-year 2019 and will annualize in 2020.

24:17 Secondly, the aforementioned significant price reductions for the EES franchise, which occurred in the fourth quarter of 2019. And third, recent competitive challenges to EEMT, which have resulted in the reduction of average price beginning in January of 2020. These declines as well as normal course annual volume declines in our brand business are expected to be more than offset by the addition of generic products acquired from Amerigen in January, continued uptake in the demand for vancomycin oil solution and vertilium, and organic generic pipeline launches. Given these factors, we currently project net revenues to be between 213 and 223 million, representing a 3 to 8 percent increase over 2019.

25:16 Adjusted non-GAAP EBITDA is projected to be between 80 and 86 million or essentially flat as compared to the 83.2 million posted in 2019. Inherent in this guidance are the following. In anticipation that non-GAAP gross margins will contract by approximately five to seven points from the 71% achieved in 2019, principally resulting from lower price and unfavorable product mix. A reduction in research and development spending driven by the wind down of activity in our Cortrophin Gel Recommercialization Program.

26:01 A portion of this reduction is anticipated to be reallocated toward generic pipeline opportunities. And finally, moderation of the growth in non-chortrophin-related SDNA expense. Resulted adjusted non-GAAP diluted earnings per share is projected to be between $4.46 and $4.86 per diluted share and reflects an anticipated effective income tax rate of 24% and approximately 12.1 million shares outstanding. Note that the year-over-year changes for our non-GAAP EPS metrics include the impact of additional cash interest resulting from the December 1st refinancing of our convertible debt, which carried a 3% cash coupon, to bank debt, for which we currently anticipate an all-in rate of approximately 4.6%.

27:04 This change is worth approximately $1.9 million after tax are roughly $0.16 to the EPS calculation. The longer-term benefit of this change in debt structure is to protect our shareholders from future potential equity dilution and to avoid the high upfront costs associated with convertible debt, the costs of which are not reflected in the coupon rate. In addition, our guidance ranges include a straight 24% effective income tax expense rate as compared to an actual tax benefit recorded in the 2019 actual results. When taking these two factors in combination with one another, it accounts for an over 50 cent per share bridge to the ETS calculations.

28:00 In summary, we exit 2019 with a focus on maximizing near-term vancomycin OS and Bertilium opportunities, leveraging the recently acquired Amerigen generic portfolio, continuing to diversify our product offerings through ongoing business development, expanding the potential for our CMO business and A&I Pharmaceuticals Canada, and most importantly, gaining FDA approval for Cortrophin. With this, I will turn the call back to our President and CEO, Art Griswold.

28:41 Thank you for that, Steve. Lori, we will now open the conference call to questions. Thank you. As a reminder, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Your first question comes from the line of Dana Flanders of Guggenheim.

29:00 Hi. Thank you very much for The questions, I just had a couple quick ones if I could. First, could you provide kind of the relative contribution of the emerging portfolio to guidance this year? Any context would be helpful and kind of what the growth outlook for that portfolio is going forward. Number two, just how should we think about just the gross margin sustainability? I know it's ticking down this year to the mid-60% range. That's still a relatively attractive margin profile versus generic peers. We're just curious if the base is down enough and you're launching enough valuable products that you can sustain that mid-60% gross margins. And just the third one, I may have missed this, but how much inventory build are you planning for Catrophin this year?

29:49 I understand you're not including any revenue and guidance, but just curious how much demand you can meet if you are approved four months after filing. Thank you.

30:01 So let me take the last question first, the inventory bill for quercrofen.

30:05 I anticipate, again, spending another $11.5 million this year on top of the $6.7 last year. So the most important part of the inventory for quercrofen is really the stockpile of pig pituitaries, and more importantly than that, the stockpile of active pharmaceutical ingredients. We will have a stockpile of active pharmaceutical ingredient after that total investment that is very, very close to 50% of the market. If we're estimating that the market is 30,000 vials, we're going to be very close to being able to, from our API stockpile, generate almost 15,000 vials of finished dosage form.

30:57 Your second question... The Gross Margin Sustainability in the Mid-60s. We think that's an accurate reflection of where our business is at this moment in time. We no longer have really, I'll say, top-heavy generic product contributors after the hits we took on those three products recently. And so we feel that that's really an accurate reflection of where the business is today X any additional acquisitions, etc. And the last question may be on the portfolio of emergent. Steve, could you address that, please?

31:41 Yeah, sure. Good morning, Dana, and thanks for the questions. Yeah, we're not going to speak to the particular numbers for the emergent portfolio in the guidance. I think that would be a typical approach, right? I mean... We do anticipate a significant contribution from the Amerigen portfolio, and I would say qualitatively that that contribution is very much in keeping with what our expectations for the portfolio were when we purchased it. All of the transition plans to move the volume as it stood in the hands of Amerigen over to A&I Contracts and Customer Contracts has gone very smoothly.

32:32 And so we're quite pleased out of the gate with our expectations for that portfolio.

32:41 Okay. Thank you very much. You're welcome, Dana. Your next question comes from the line of Elliot Wilber of Raymond James.

32:50 Thanks. Good morning. First question for yourself, Art, regarding the upcoming corticotropin filing. Likely the last time we hear from you before you actually submit the application. So just a couple points of clarification. When you actually file, do they notify you of official acceptance? And is that a 30-day timeline? And if so, is that something that you would press release? Second part of the question, do you think the filing could or should qualify for potentially an expedited review. And last part here is these types of applications generally seem to move through the agency much more smoothly, efficiently, and expeditiously when they have attention from folks kind of outside the review division and other than the individual reviewer themselves.

33:44 So maybe could you describe if there are any activities taking place that might become visible to us Post that filing or ahead of the filing that suggests that this is going to be a high-priority endeavor for FDA.

33:59 Thank you, Elliot. Good morning. We'll take the last part of your question first, and that is, will there be activities outside of the filing? Yes, there will be. I think your point is very well taken. It's very important that... Several government officials, both in the Senate and House of Representatives, as well as HHS, FDA, are cognizant of the fact that we have filed our supplemental to our approved cortropin gel drug. There's obviously, over the years, a significant amount of noise associated with the monopolistic approach and pricing approach of Axar Gel.

34:50 And so I think we would certainly provide notification to these government officials that there's an important filing in the FDA-NDA division associated with our product and why it's important. We certainly will have a letter-writing campaign to respective officials that we think cannot influence approval, but nevertheless have an understanding that this has arrived on their desk after four years. You asked a little bit about the expedited review. This product is not eligible for an expedited review.

35:37 It's already approved. This is This is why we will receive on the date of filing a four-month PDUFA date. And so, in theory, the product itself could be, the supplemental could be approved within four months. We're not handicapping that, but that is certainly a potential possibility. But as such, it's not eligible for expedited review. However, it's very important to point out that we're in the NDA division. This is not a biosimilar. We're not an office of generic drugs. And typically, my perspective is that the NDA division is a more expeditious division than maybe the office of generic drugs for some of these complex-type products.

36:29 And so hopefully that... answers the extent of your questions. If I missed something, let me know.

36:37 Sure. No, just one follow-up point here. Is there actually a post-submission notification that the supplement is sufficient for review?

36:48 Yeah, I forgot that. Very good point. So yes, there will be a notification approximately within 30 days that they have accepted our filing. We see this as kind of de rigueur and and we see no reason why they wouldn't with the filing that we're submitting. Whether or not we, this is sort of second nature, whether or not we issue a press release associated with the fact that they've accepted our filing is debatable. I think we'll internalize that and if we feel that that is important to do so, we certainly will but again, we Expect 100% that they will accept us finally.

37:35 Okay. And just a couple financial questions for Steve and yourself as well. I'm just thinking about numbers, cadence of the balance over the course of the year. We expect, obviously, second half to be stronger than the first half, but maybe more specifically, would you think that by the time we get to the second half of the year that the incremental contribution from The effect of Amerigen on our business is, you know, sake of argument, instantaneous. So on the day we bought it,

38:27 We picked up their revenues and gross profit. Now, we have subsequently launched some additional products from that Amerigen portfolio. And obviously, we didn't acquire Amerigen on January 1st. But there's an immediate effect from Amerigen. Vancomycin and Bertillium, as I think both Steve and I spoke to, is a constant build. And so, you know, from Vancomycin Oral Solution... Enough to be the importance of that. From Vancomycin Oil Solution, we see a steady build of scripts over time. And so, you know, we feel very good. We've sort of extrapolated out what that means. We feel very good about the forecasted annualized revenue number for that product.

39:12 For Bertilium, Bertilium is going to take a little bit longer because Bertilium has been off the market for some time. We certainly believe that this is a critical care drug that should be on crash carts as it was in the past for all hospitals and emergency services. We have an opinion paper that was authored actually by, in quotes, the father of Bertilium that it will be coming out shortly and that will help guide hospitals and P&T committees to understand the continued significance of Bertilium. But that one's going to take a little bit longer.

39:57 And so we have, quite frankly, a slower ramp on that product. And Steve, is there anything you'd like to add to that at all?

40:07 No, I think that's spot on. And Elliot, to the lead-in of your question, I'd say also spot on leads. We currently anticipate the comps for the first and second quarter are obviously more difficult. And then when you bake in the factors being described here, we would anticipate the third and fourth quarter to be reflective of growth.

40:36 Okay, two quick financial follow-ups, Steve. With respect to adjusted EBITDA guidance, Obviously, most corticotropin expenses are excluded from that, but I wasn't sure if, in fact, that excluded all potential expenses relating to launch, including some potential sales marketing activities in the back half of the year. And maybe just, if you could, provide a little bit of color in terms of what's happening in the branded business, the branded portfolio, and the softest, and a couple of the More established brand lines, is it incremental generic competition, customer mix, just what the dynamics there are and kind of why you're seeing a little bit more pressure at the margin?

41:19 Let me ask you a question first and I'll let you take the first one. So our brands have primarily been acquired and they have great margins and great cash flow. Over time they decline. They're mature brands. There have been generic versions of these drugs. And many times we even launch an authorized generic ourselves against the brand. So as you know, our brands have, sake of argument, 1% or less market share. So over time, you will see our brands decline. And so you might not have seen that in the past, but that is because we've done branded acquisitions that sort of cover up the declines on the existing brand sales.

42:08 And those declines are driven by just more and more people going to generics or maybe more and more payers continuing to refer pharmacies to, obviously, the fact that there's a generic version available. Nevertheless, brands for us still represent, again, significant revenues and margins in cash flows. And really, from an SG&A perspective cost us nothing to service. It's a very de minimis amount. So we are still active in attempting to acquire mature brands where we can. And so those opportunities pop up from time to time. And as you know, Rob Shrepper is on top of those opportunities when they present themselves.

42:58 Steve, maybe you wanted... to tackle the Cortropin question.

43:04 Yeah, sure thing. So I think we can think of the Cortropin expenses, Elliot, probably in three buckets. So the first is on the R&D expense side. So what we anticipate there is certainly on an annual basis a significant decline year over year in R&D spend. You know, call it somewhere around the six plus million of annualized declines. And from a calendarization, the remaining spend that we anticipate will occur principally in the, call it the first quarter of this year. And so that'll be a little bit of a uplift in the back half of the year from an expense perspective.

43:57 About half of those declines or reductions in spend we currently anticipate reallocating towards the generic programs that we're running. The second main bucket would be the prelaunch inventories that we spoke about in the prepared comments. And so we do project, call it, well, $11 to $12 million dollars have pre-launched inventory builds in 2020 as compared to the 6.7 spent this year. And those expenditures we are adding back for non-GAAP purposes, obviously under the premise that, you know, once this product is approved, those are, you know, that would be inventory, right, and typically wouldn't be hitting our PML.

44:52 and then lastly is on the sales and marketing side and the guidance figures we gave this morning do not include any significant sales and marketing spend in those numbers. It's kind of under the premise that we're not putting in sales figures, we're not putting in the sales and marketing spend either and so We should expect to see that as an add-back to our non-GAAP figures until we reach the point of launching the product.

45:30 Okay, one last question for Art. Strategic question. The company's done a very, very good job over the years in terms of building the business through opportunistic acquisitions of both brand and generic products, taking advantage of the distress and misery in the space. One of the areas you've talked about, though, for some time in terms of having a strong interest in is injectables, but sort of listening to the rhetoric from around the industry, that's also an area where quite a few companies still see that as a growth opportunity or a growth sector and are actively looking for assets in the space. So I'm just wondering, what do you think or what would you sort of, highlight or characterize as the opportunities for A&I within the context of, you know, an industry that still sort of views injectables as an attractive area?

46:26 So, this is a good question, Elliot. I mean, for us, it's sort of a natural segue since, obviously, you know, Thank you for joining us. You know, again, as you mentioned, because maybe the need on the part of the seller for capital, etc.

47:16 And I think we see there are certainly opportunities out there for injectables, some commercialized, some development. And yes, we are very well aware that a lot of folks are chasing some of those opportunities. Some of those opportunities are... have been actually created by the government, to be frank, on 505B2s and the like. And I think you've seen some of them on products like calcium gluconate that Presenius has. I mean, just an absolutely ridiculous price associated with a product that costs nothing to make. And so those opportunities are still out there. I think Elliot, one way to look at us is to say, okay, we've always been a sort of nuts and bolts company. We've been very careful how we've built out the business model in generics and mature brands. We've been very careful how we spent our money.

48:18 We've been very careful on our debt levels and leverage. But at the same time, the company took a significant high risk, high reward opportunity and we plunked down $75 million for a A bunch of papers. But those papers are now coming to fruition for us. And I think we are incredibly bullish on cortropin gel and what it could do for the company and our investors in the short term and then obviously longer term into the future. My point that I'm trying to make is we have to find additional high-risk but high-reward opportunities.

49:04 in our pipeline. And knowing that we can fund them and keep all our other levels where they are, we're going to look for those. And they're out there. And we're certainly having discussions on some of them as we speak. And so we want, because we want to have our pipeline have some additional high-risk, high-reward opportunities alongside all of what we call more of our tuck-ins. opportunities that has fueled our growth from the time we've been public to the time today. That's the way we're looking at some of these scenarios going forward. What's going to replace Cortropin now that that's done with?

49:53 Obviously, Cortropin revenues and cash flow gives us the opportunity to add and some of those, as I just said, high-risk, high-reward opportunities to our business model. And I think it's very important for a company like us. We're not really, we're described, Elliot, as a generic pharmaceutical company. What generic pharmaceutical company out there today has margins of 65% to 70% and throws 40% of its revenues down to its EBITDA line and has available cash flow and credit lines that aren't drawn available to them. I think you'd be hard-pressed to find one. And so, you know, we want to continue to apply the same disciplines that we have over the last several years to forward-looking opportunities, needless to say. And that's our intent. And so, you know, Rob is out there with his team every day looking for those things. And we'll find them.

50:57 I have a High degree of confidence from our precedent transactions that our future ones will also continue to bring value to our shareholder base. Thanks. Thank you, Ellie. Your next question comes from the line of Brandon Fulks of Cantor Fitzgerald.

51:19 Hi. Thanks for taking my question. Maybe just following on that, Art, you mentioned that you believe that the generics industry needs to continue to consolidate whilst pivoting towards the injectable drug and specialty drugs. If the opportunity presents itself, would you still grow your generics business through consolidation, or should we think of business development going forward really focused on the injectable and specialty space alone?

51:52 Brandon, thanks for that question. I think that we mentioned that we certainly will continue to look for token acquisitions. I think that the key numbers in regards to our generic acquisitions that we've done is that we've done 15 for a total of $135 million. And from those transactions, just in 2019... Those transactions contributed $96 million in revenues at obviously very nice margins. And so we wouldn't stop with that. But we've always been a value type of buyer.

52:38 And today's marketplace for these acquisitions, it's still vibrant.

52:47 There are so many...

52:51 There are so many companies that are strapped for cash. There are many companies, you know, generics has always been an entrepreneurial type business in 14 and 15 when the generic market was flying high and people thought prices were going up forever. You know, a lot of smaller entrepreneurial companies cropped up and started and people, you know, entrepreneurs did development on products the traditional way and now they're getting approvals but They're a little bit short on cash to launch some of these drugs. We see it all the time. And it costs just as much money, if not more, to launch drugs, inventory bills, and obviously waiting for your receivable dollars from the wholesalers than it does maybe to develop the drug.

53:43 And so that's where some of our opportunities lie. So we will certainly... We won't turn a blind eye to... A good value or good acquisition opportunity for our shareholders, which is why I mentioned that, you know, we'd still look for these tuck-in opportunities. However, it is very important for us to, you know, without question, diversify away from just doing the primary bulk of our business with the three consortiums. Now, we're going to do that, obviously, to a court rope and gel. And the three consortiums are not going to have the same level of of purchasing power over our business model than they do today because of that one drug. But we think more and more drugs need to contribute to that effect as well. We just need to have a greater diversified platform because the one thing we can't... I was talking to an investor earlier this morning, and they were dismayed. They thought that we were just going to buy the American...

54:49 products added to our ascribed EBITDA run rate, and that would be our new run rate essentially for the new year. Well, you know, so did we. And by that I mean we never know in the oil solid space with the three consortiums where competition is coming from. And when it hits, it hits hard. So if you all of a sudden have a very nicely running gross margin product like we did at EES for three years and you get two competitors, Price drops 50% overnight. And there's nothing you can do to backstop that but to maintain your market share and drop your price and have enough products to launch to offset that. And we were fortunate. We've been able to do that so that our EBITDA run rate is certainly right where it was last year. It's still representative of throwing off 40% from our revenue line. That's powerful. and so that's great for us and these acquisitions mean a lot to us but the fact is we just don't know where competition is coming from at any point in time.

55:55 So diversification across different business platforms within the generic industry is important to us and so are opportunities like 505B2s, etc. So we're at a scale now as a company and the fact that we've spent our money, sake of argument, invest a lot of our money in Cortropin Development that allows us to pivot to some of these other areas as well. And fortunately, we've got the cash flow and the liquidity to allow us to do so. That's why I think we're in excellent shape. These types of quarters, they're moments in time, they're 90 days in duration, but they don't represent the long-term potential for our business. And so we, as a management team, feel very confident in our approach to this marketplace going forward, obviously.

56:54 Great. Thanks very much.

56:59 Moderator, if there's no other questions, I'd just like to thank everybody for attending ANI's 2019 earnings conference call and wish you all a good afternoon. Thank you very much. Bye-bye. Thank you. This concludes ANI's fourth quarter 2019 earnings call. You may now disconnect your lines at this time and have a wonderful day.