Akorn reports Q2 2009 financials

Akorn, Inc. (NASDAQ:AKRX) a specialty pharmaceutical company, today reported financial results for the second quarter ended June 30, 2009.

Total revenue for the second quarter 2009 was $16.3 million, versus $21.2 million in the second quarter 2008, representing a decrease of approximately 23%. The revenue decrease was across all segments with the exception of contract manufacturing. Td vaccine revenue decreased $2.2 million or 22% and ophthalmics and hospital drugs & injectables revenue decreased $2.8 million or 31% compared with the prior year period. The year-over-year decrease in ophthalmics is primarily due to a $1.1 million adjustment in the product returns reserve. The hospital drugs & injectables decrease is a result of lower hospital antidote sales compared with the prior year period. In particular, the 2008 recall of Becton Dickinson syringes used in our cyanide antidote kit has resulted in an additional $242,000 in product returns reserve in the second quarter 2009 as well as a temporary downturn in our cyanide antidote kit sales cycle which we expect to reverse in the second half of 2009.

Gross profit for the second quarter 2009 was $1.7 million compared to $4.8 million in the second quarter 2008, a decrease of 65%. The decrease in second quarter 2009 gross profit over the prior year period is primarily due to the $1.3 million increase in our product returns reserve, lower sales of our more profitable antidote products and a higher concentration of low margin contract manufacturing products. Gross margin for the second quarter 2009 was 10.2% versus 22.7% for the second quarter 2008.

During the second quarter 2009, the Company recognized equity earnings totaling $128,000 from its investment in the Akorn-Strides, LLC joint venture and marketing fee revenue of $140,000 for its commission on sales of joint venture products. The joint venture recognized net sales of approximately $1.9 million during second quarter 2009. Joint venture sales increased $1.0 million over first quarter 2009 as a result of our second quarter 2009 launch of two new injectable drugs: Vancomycin and Tobramycin.

The Company’s net loss was approximately $7.0 million in the second quarter 2009 compared to a net loss of $2.8 million in the second quarter 2008. This reflects the revenue and gross profit decreases discussed above as well as a $0.5 million increase in research and development, mainly due to additional product development fees. The second quarter 2009 net loss also includes $0.6 million in severance charges and legal fees related to the renegotiated MBL supply agreement.

Second quarter cash flow from operating activities was a use of $3.1 million. The revolving line of credit balance remained unchanged at $5.5 million compared to the quarter ended March 31, 2009, while the cash balance ended at $1.0 million on June 30, 2009 compared with $4.7 million on March 31, 2009. Strong first and second quarter Td vaccine sales and corresponding cash collections resulted in improvements to the balance sheet with a $3.6 million reduction in trade accounts receivable, a $5.1 million reduction in inventory and a decrease of $7.5 million in trade accounts payable over the quarter ended March 31, 2009.

The Company is finalizing amendments to the existing revolving line of credit with EJ Funds and subordinated debt with The John N. Kapoor Trust, the terms of which will be more fully described in the Company’s Form 10-Q, which will be filed by August 17^th.

Raj Rai, Interim Chief Executive Officer stated, “We have continued to make progress in the second quarter on various fronts while we re-position the Company for growth. A summary of actions taken so far in order to address the operational challenges that the Company has faced include:

• Reduced the company workforce by approximately 7% and implemented additional cost reduction strategies throughout the organization to realize approximately $6 million in annualized cost savings;
• Negotiated additional funding from EJ Funds for growth initiatives;
• Re-aligned the sales force to focus on the ophthalmics and hospital drugs & injectables with incentives to grow high margin products;
• Implemented strategies and operational plans to optimize plant productivity and supply chain inventory levels;
• Re-launched Akten®;
• Strengthened the management team.

Rai further added, “These measures were required to stabilize the Company’s operations. While we continue to look for additional operational efficiencies and cost saving opportunities, we will shift our focus in the second half of 2009 towards increasing the pull-through demand from our hospital clients, increasing direct sales in Ophthalmology and launching three new products: Capastat, Ciprofloxacin and Apraclonidine, as well as implementing new contract manufacturing accounts. With the steps taken in the second quarter and the new business initiatives, we believe the Company can achieve positive cash flow by the end of 2009.”