Akorn third quarter consolidated revenue increases 69% to $36.7M

Akorn, Inc. (NASDAQ: AKRX), a niche specialty pharmaceutical company, today reported financial results for the third quarter of 2011. Consolidated revenue for the third quarter of 2011 was $36.7 million, up 69% over the comparable prior year quarter consolidated revenue of $21.7 million. The increase in revenue was the result of a full quarter of AVR sales totaling $5.6 million, the continued growth of products launched in 2010 and strong organic growth in established injectable and ophthalmic products. Consolidated gross margin for the third quarter of 2011 was 60% compared to 53% in the comparable prior year period. Sustained improvements in gross margin are the result of favorable product mix, selected price increases and higher utilization of plant capacities.

Net income for the third quarter of 2011 was $13.5 million, and earnings per share were $0.13 per diluted share compared to a net income of $4.0 million and earnings per share of $0.04 in the comparable prior year quarter. Third quarter 2011 net income included $2.0 million of expense from the convertible debt issued June 1, up from $0.7 million in expense in the prior quarter. Of the $2.0 million in expense related to the convertible debt, $1.0 million represents cash interest and $1.0 million represents non-cash accretion of the convertible debt discount and amortization of deferred financing costs. Third quarter 2011 net income also included a $6.2 million credit to income tax expense. The Company's deferred tax assets had previously been fully reserved to reflect the uncertainty that the Company would generate earnings sufficient to realize the benefit of these assets. The credit in this quarter represents the reversal of the reserve as the Company now feels it is probable it will realize the full benefit of its deferred tax assets.

Third quarter 2011 Adjusted EBITDA was $11.9 million, up 88% compared with $6.3 million in the comparable prior year quarter.

Third Quarter Highlights

• Revenue growth of 69% over the comparable prior year quarter, or 44% excluding the impact of the AVR acquisition.
• Ninth consecutive quarter of growth in core revenue, adjusted EBITDA and gross margin (excluding the impact of acquired inventory step-up adjustments). Akorn's core business consists of the ophthalmic, hospital drugs & injectables and contract services segments.
• Entered into agreement to acquire certain assets of Kilitch Drugs in India, which if closed as planned, will expand the Company's capacity and capabilities in sterile injectables.
• Generated $7.6 million in operating cash flow and ended quarter with $126.6 million in cash and cash equivalents.
• Filed five new internally developed ANDAs with a combined annual market size of $170 million.
• Acquired one ophthalmic product the Company intends to launch in 2012.
• Launched injectable Levofloxacin 25mg/mL single-use vials.

Raj Rai, Chief Executive Officer, commented, "Our results reflect a strong demand for all products across our portfolio. We continue to increase our market share as a result of increasing existing contract penetration and new contract wins and as a result of drug shortages impacting hospital injectables. We remain excited about the growth opportunities ahead of us and are looking forward to closing the Kilitch acquisition by the end of this year."

2011 Revised Outlook

• The Company projects 2011 revenue of approximately $130 million to $132 million.
• The Company's 2011 gross margin is projected to be approximately 57%.
• The Company projects 2011 adjusted EBITDA of approximately $41 million to $43 million.
• In 2011, the Company expects to spend approximately $15 million to $20 million in capital expenditures to increase plant capacities and improve efficiencies.
• The Company is projecting 2011 R&D expenses of approximately $10 million to $11 million.
• The Company's 2011 outlook excludes the impact of any new approvals after October 31, 2011.

Akorn's R&D Pipeline

The Company has 27 ANDAs filed with the FDA with a combined annual market size of approximately $3.0 billion. The Company has completed development work on 10 additional products with a combined annual market size of approximately $1.2 billion and expects to file these products with the FDA shortly.