Akorn, Inc. (NASDAQ:AKRX), a niche generic pharmaceutical company, today reported financial results for the second quarter ended June 30, 2010.
“We are extremely pleased with our performance. The second quarter results demonstrate our continued focus on growing our core business as we have effectively replaced the vaccine revenues from the first quarter with higher margin core business revenue in the second quarter.”
Consolidated revenue for the second quarter of 2010 was $20.2 million, versus $16.3 million in the second quarter of 2009, representing an increase of 24%. Second quarter revenue for the core business, consisting of ophthalmic, hospital drugs & injectables and contract services, totaled $20.2 million in 2010 versus $8.5 million for the same quarter in 2009, an increase of 138%. Sequential quarter core revenue grew 32%, from $15.3 million to $20.2 million.
Consolidated gross margin for the second quarter of 2010 was 49% compared to 10% in the prior year period. Second quarter core business gross margin was 49% compared to 0% in the prior year period and up sequentially from a gross margin of 42% in the first quarter of 2010. Second quarter 2009 gross margin was depressed due to lower sales which resulted in an underutilization of plant capacities.
Selling, general and administrative expenses for the second quarter of 2010 were $6.0 million, versus $5.8 million in the second quarter of 2009 and $4.8 million in the first quarter of 2010. The sequential quarter increase was largely attributable to a $0.7 million increase in non-cash stock compensation expense and a $0.2 million increase in selling expenses as a result of fully staffing the sales force to support recent product launches and approvals.
The Company's reported net loss of $9.4 million for the quarter includes a $10.7 million non-cash expense to record the quarterly change in fair value of warrants. As disclosed in the Company's Form 8-K filed on July 2, 2010, the Company has amended the agreements governing the registration of the outstanding warrants it issued in 2009. As a result of this amendment, the Company changed its accounting treatment for these warrants as of the effective date, June 28, 2010. The warrants will no longer be classified as a liability with quarterly adjustments to fair value and instead will be treated as a component of shareholders' equity in accordance with Accounting Standards Codification 815-40, Derivatives and Hedging. Prior to executing the amendment, the Company had accounted for these warrants as liabilities that were adjusted to fair value quarterly, with any increases or decreases in fair value recorded as non-operating expense or non-operating income, respectively. The change in fair value from March 31, 2010 to June 28, 2010 was recorded as non-operating expense in the second quarter of 2010 with the June 28, 2010 fair value of the warrants reclassified from liabilities to shareholders' equity. No further fair value adjustments are required beyond that date.
Second Quarter Highlights
- Core business revenue growth of 138% over the prior year quarter as a result of the continued growth of recently launched products and robust sales of seasonal allergy ophthalmics which favorably impacted both the ophthalmic and contract services segments.
- Improved gross margins of 49% due to favorable product mix, higher utilization of plant capacities and the launch of new, higher margin products in the trailing four quarters.
- Operating income of $1.4 million and adjusted EBITDA of $4.2 million.
- Made $2.4 million in partner payments which were accrued in 2009 but paid in 2010 in accordance with negotiated extensions. Includes a final payment of $1.5 million to MBL.
- Received ANDA (abbreviated new drug application) approvals for Erythromycin Ophthalmic Ointment, USP 3.5g and injectable Hydromorphone Hydrochloride, USP 10mg/mL in three sizes.
- Initiated development of 20 new products.
Raj Rai, Chief Executive Officer, commented, "We are extremely pleased with our performance. The second quarter results demonstrate our continued focus on growing our core business as we have effectively replaced the vaccine revenues from the first quarter with higher margin core business revenue in the second quarter."
Rai further added, "Our R&D initiatives are on track and we are evaluating additional projects to begin development before the end of the year. In addition, we plan to make strategic investments in our plants to increase our capacity and efficiencies. These investments will ensure our readiness to support our current demand and future growth as a result of our R&D initiatives in the next 3 to 5 years."
Revised 2010 Outlook
- The Company projects 2010 revenue in the range of $76.0 million to $80.0 million. Core business revenue is projected in the range of $71.0 million to $75.0 million in 2010, a 59% to 67% increase over 2009.
- The 2010 gross margin for the Company's core business is projected to be between 45% and 48%.
- The Company projects 2010 adjusted EBITDA in the range of $13.0 million to $16.0 million compared with a negative $4.2 million adjusted EBITDA in 2009, and up from the prior guidance range of $10.0 million to $13.0 million.
- In 2010, the Company expects to spend approximately $4.0 million on base capital expenditures compared with $1.1 million in 2009. Additionally, the Company plans to make strategic investments of approximately $5.0 million in 2010 to increase its plant capacities.
- The Company is projecting 2010 R&D expenses of approximately $8.0 to $9.0 million versus $4.8 million in 2009.
- The Company's 2010 outlook includes the partial year impact of all 2010 product approvals through August 2, 2010. It excludes the impact of any approvals after August 2, 2010.
Akorn's R&D Pipeline
The Company's pipeline includes 9 ANDAs filed with the FDA with an annual market size of approximately $1.2 billion. Akorn expects to file an additional 7 ANDAs in 2010 with an estimated annual market size of $1.2 billion and 24 ANDAs in 2011 with an annual market size of approximately $4.5 billion. Additionally, there are 7 ANDAs filed with the FDA through the Akorn-Strides, LLC joint venture.