ANI Pharmaceuticals Inc (ANIP) Q1 2023 Earnings Call Transcript

ANI Pharmaceuticals Inc (NASDAQ:ANIP) Q1 2023 Earnings Call dated May. 08, 2023.

Corporate Participants:

Judy DiClemente — Investor Relations

Nikhil Lalwani — Chief Executive Officer

Stephen Carey — Chief Financial Officer

Analysts:

Elliot Wilbur — Raymond James — Analyst

Vamil Divan — Guggenheim Securities — Analyst

Brandon Folkes — Cantor Fitzgerald — Analyst

Greg Fraser — Greg Fraser — Analyst

Oren Livnat — HC Wainwright — Analyst

Presentation:

Operator

Good day everyone and welcome to today’s ANI Pharmaceuticals Q1 2023 Earnings Call. [Operator Instructions]. Please note this call will be recorded.

[Operator Instructions]. It is now my pleasure to turn today’s call over to Judy DiClemente, please go and.

Judy DiClemente — Investor Relations

Thank you, Ashley. Welcome to ANI Pharmaceuticals Q1 2023 Earnings Results call. This is Judy DiClemente of Insight Communications, Investor Relations for ANI.

With me on today’s call are Nikhil Lalwani, 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 www.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. And I specifically disclaim 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 call was held and recorded on May 8, 2023. 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 Nikhil Lalwani, Nikhil.

Nikhil Lalwani — Chief Executive Officer

Thank you. Judy. Good morning, everyone, and thank you for joining our call. ANI remains focused on two strategic imperatives designed to help us serve patients in need and drive profitable and competitive growth. Firstly, the scale up of our rare disease business with the successful launch of our lead rare disease assets Purified Cortrophin Gel and the potential to add assets that leverage the rare disease infrastructure we have built. This business will be the largest driver of ANI’s growth.

The second imperative is driving generics business growth through superior new product launch execution, cost excellent and supply reliability. These efforts coupled with our enhanced operational excellence have enabled ANI to compete and win across our core business segments, and to generate record quarterly net revenues of $160.8 million for the quarter and record quarterly adjusted non-GAAP EBITDA of $33 million. Our outstanding operational performance demonstrates the strength we’ve built in our core business segments, and I congratulate the team for their hard work in achieving these outstanding results announced this morning.

On the rare disease front, we continue to invest in the launch of our foundational rare disease asset Purified Cortrophin Gel. We strengthened the team and improved how we’re servicing patients, physicians and payers, which has accelerated our launch momentum and increased access to ACTH therapy for patients in need.

As noted on last quarter’s earnings call for competitive sensitivity reasons, we will no longer be providing more detailed metrics on Cortrophin. However, we are pleased to report that the acceleration of our launch momentum is evidenced by the record quarterly number of new cases initiated in Q1 2023 and record monthly new patient starts and cases initiated in April of 2023. We are also seeing continued growth in the number of new unique prescribers and repeat prescribers. In fact, many prescribers who had previously slowed or discontinued use of ACTH class have restarted their use of ACTH therapy after the launch of Purified Cortrophin Gel.

Our promotional efforts, our focus on rheumatology, neurology, nephrology and pulmonology. We have ramped up peer-to-peer education programs across our three targeted specialties of rheumatology, neurology, and nephrology to further increase awareness of Cortrophin Gel. In addition, we have completed recruitment of and on boarded of modest and dedicated pulmonology sales team. Central to our Cortrophin Gel launch have been our efforts to increase market access for the ACTH class for appropriate patients in need.

A critical relevant trend to highlight for the Cortrophin Gel launch is the growth in the overall ACTTH category. Prior to the launch, the ACTTH category had continued to decline and according to IQVIA, had not shown Year-over-Year unit growth since 2019. ANI launched Cortrophin Gel in January of 2022 and from June of 2022 to March 2023 for 10 consecutive months, the ACTH category has shown Year-over-Year unit growth according to IQVIA. In fact, in the first three months of 2023, the year-on-year category unit growth has been in the double digits. First-quarter net revenues of Cortrophin Gel were 16.3 million, which was in line with our expectations and bolsters our confidence in our full-year Cortrophin Gel revenue guidance of $80 million to $90 million. We are pleased with the progress of this launch and look-forward to enhancing the scale and scope of our rare disease business. We continue to actively explore adding other assets that can leverage our rare disease infrastructure.

Next. I will turn to the generic established brands and other revenue segments, which increased to $90.5 million, an increase of 43% over the prior year. These results showcase our ability to use our U.S. manufacturing footprint and agile operations to deliver timely solutions to our customers. During the past few years, we have enhanced ENI’s operational excellence by combining the longstanding strengths in manufacturing and our strong GMP track record with best-in-class research and development capabilities, all with the patient first orientation. This has enabled us to capture market demand arising from the numerous supply disruptions impacting patients access to much-needed medicines. We had increased our R&D investment with focus on these opportunities. We continued to file new — multiple new ANDAs in the first-quarter of 2023 and retained our top 10 ranking in the number of ANDA approvals. We have also retained our number two ranking in competitive generic therapy approvals in 2023.

Our efforts to drive cost excellence have includes the consolidation of our manufacturing network with the rationalization of manufacturing operations in Oakville, which is now completed. Discussions with potential buyers for the Oakville site are ongoing. In addition, we have augmented our analytical and development facility in Chennai, India with over 60 skilled colleagues. Equally important are our efforts to ensure supply, reliability of supply. We have a strong compliance and audit track-record, enhanced further by recent successful FDA audits across all three sites.

In fact, our New Jersey site was inspected in March 2023 and had zero 483s and an NAI satus. Last, but not the least, we continue to maintain healthy inventory levels for finished goods and raw materials, allowing us to capture any opportunities arising from market disruptions. These achievements demonstrate ability ANI’s ability to deliver sustainable competitive and profitable growth while keeping the patient at the center of everything we do. The overall trajectory of our business boosts our confidence in the 2023 outlook. And we are definitely raising full-year revenue guidance to between $385 million to $410 million and adjusted non-GAAP EBITDA guidance to between $97 million and $107 million and adjusted non-GAAP EPS guidance to $2.99 to $3.45.

Steve will now walk-through our detailed first-quarter financial results and discuss the revised guidance for the year in more detail. Steve. Thank you, Nikhil. And good morning to everyone on the call. As Nikhil indicated, we posted very strong results in the first-quarter of 2023, capitalizing on the groundwork we have laid over the past two years to build sustainable growth platforms and strengthen the capabilities of ANI. We saw growth across our core businesses, generating record first-quarter revenues of $106.8 million, marking the first time in ANI’s history that our quarterly revenue has surpassed $100 million. This represents $42.3 million or 66% growth over the $64.5 million reported in the first-quarter of 2022 and is up 13% sequentially from the $94.2 million of revenues reported in our previous record fourth-quarter of 2022. It is important to note that this is the first quarterly reporting period where results are on a consistent basis with our two growth catalysts; the acquisition of Novitium, which closed in November of 2021 and the launch of Purified Cortrophin Gel, which occurred in the first-quarter of 2022. As such, first-quarter of 2023 performance is reflective of organic growth at the company. Revenues from Cortrophin reported in our rare disease segment were $16.3 million in the quarter, up $15 million from prior year. We are pleased with this result and it is in line with our expectation. Further, we believe this level of first-quarter performance creates a strong foundation for achievement of our full-year 2023 Cortrophin revenue goals. Revenues of our generics established brands and other segment rose $27.3 million to $90.5 million, an increase of 43% over the prior year and $13.8 million or 18% as compared to the fourth-quarter of 2022. These increases were driven by a $14.6 million gain in our generic pharmaceutical products, an increase of nearly 30% Year-over-Year and a $12.7 million gain in our established brands royalties and other category for an increase of 90% Year-over-Year. The growth in this segment was driven by increased volume and ANI strong commitment to U.S.-based manufacturing, excellence in generic product selection and R&D and an informed and nimble team. These attributes when combined enabled ANI to quickly and efficiently be evolving market needs. Operating expenses increased by 16% to $96.9 million for the three months ended March 31st 2023 from $83.7 million in the prior year period. Cost of Sales excluding depreciation and amortization increased by $3.4 million to $37.7 million in the first-quarter of 2023 compared to $34.3 million in the prior year period, primarily due to a shift in product mix and increased volumes of sales of generic and rare disease pharmaceutical products. In addition, during the prior year period, we recognized $3.8 million in cost-of-sales, representing the excess of fair value over cost for inventory acquired in acquisitions. There were no comparable expenses in the current year period. Excluding the impact of acquisition accounting, stock compensation and the effects of our Oakville Ontario plant closure, all of which are detailed in the tables contained in this morning’s press release, cost-of-sales on a non-GAAP basis, as a percentage of total non-GAAP net revenues decreased 13 percentage points from 47% in the first-quarter of 2022 to 34% in the current year period, primarily as a result of favorable sales mix from the impact of higher sales of established brand Cortrophin and the net impact of annualization of new product launches in our generic franchise. Research and development expenses were $5.9 million in the first-quarter of 2023. an $0.7 million from the prior year period, primarily due to Year-over-Year timing of work associated with generic products, coupled with an increase in projects related to Cortrophin Gel in the three months ended March 31, 2023. Selling, General and Administrative expenses increased by 27% to $36.5 million in the first-quarter of 2023 compared to $28.8 million in the prior year period, primarily due to a $3.4 million increase in sales and marketing expenses related to Cortrophin Gel and increased headcount costs tempered by a $0.7 million decrease in transaction expenses related to the Novitium acquisition. Depreciation and amortization expense were $14.7 million for the three months ended March 31st 2023, essentially in line with prior year. During the quarter ended March 31st, 2023, we recognized a non-cash fair-value adjustment of $1 million related to the contingent consideration recorded in conjunction with Novitium purchase accounting. This is compared to $0.8 million recorded in the prior year period related to this item. In addition, we recognized $1.1 million of restructuring expense in the first-quarter of 2023, associated with the closure of our Oakville Ontario facility. No restructuring activities were recognized in the prior year period. We have excluded both the one-time charges resulting from this action, as well as portions of the Canada results, which are expected to be non-recurring post post closure from our non-GAAP financial measures as detailed in the tables in this morning’s release. Net income available to common shareholders for the first-quarter of 2023 was $1 million as compared to a net loss of $20.5 million in the prior year period. Diluted GAAP earnings per share was $0.06 per share as compared to $1.27 loss in the prior year period. GAAP earnings per share reflects significant amortization and purchase accounting-related charges really related to the Novitium acquisition coupled with Oakville related restructuring activities. On an adjusted non-GAAP basis, we had diluted earnings per share of $1.17 per share for the quarter compared to a loss of $0.12 per share for the prior year period. Adjusted non-GAAP EBITDA for the first-quarter of 2023 reached a new company record of $33 million and reflects significant gross profit pull-through from the strong revenue performance. This is an increase of $28.7 million compared to the $4.3 million reported in the prior year period. Importantly, adjusted non-GAAP EBITDA also rose $9.7 million on a sequential basis, up 42% from our previous record $23.3 million in the fourth-quarter of 2022. From a balance sheet perspective, we ended the quarter with $67.8 million in unrestricted cash, driven by cash flow from operations in the quarter of $21.4 million. This compares favorably to cash used in operations of $18.9 million in the prior year period. We have $296.3 million in face value of outstanding debt, which is due in November of 2027. In addition, we have $40 million of untapped capacity in our revolving credit facility. Finally, as outlined in this morning’s press release, we are pleased to raise full-year 2023 guidance as follows. We raised total company expected net revenues to between $385 million and $410 million, up from the previously-issued guidance of $360 million to $385 million, representing approximately 22% t0 30% growth as compared to the $316.4 million of net revenues recognized in 2022. We raised total company adjusted non-GAAP EBITDA to between $97 million and $107 million, up from previously-issued guidance of $78 million to $88 million, representing approximately 74% to 91% growth as compared to the $55.9 million recognized in 2022. We raised total company adjusted non-GAAP earnings per share to between $2.99 and $3.45, up from previously-issued guidance of $2.09 to $2.59, representing approximately 120% to 164% growth as compared to the $1.36 reported in 2022. We maintain Cortrophin specific revenue guidance at between $80 million to $90 million, representing 92% to 116% growth as compared to the $41.7 million recognized in 2022. And we continue to expect 2023 Cortrophin SG&A to increase approximately 10% over 2022 to account for a modest sales force expansion. And we now project total company non-GAAP gross margin of between 60% and 62.5%, as compared to previously-issued guidance 59.5% and 61%. In addition, we currently continue to anticipate between 16.8 million and 17.1 million shares outstanding and an effective tax rate of approximately 24%. With that, we will now open up the call to questions. Operator, please announce the instructions.

Questions and Answers:

Operator

[Operator Instructions]. We will take our first question from Elliot Wilbur with Raymond James. Please go-ahead.

Elliot Wilbur — Raymond James — Analyst

Thanks, good morning. First question for Nikhil and Steve as well. Just wanted to dive a little bit deeper into the overperformance in the base business, generics and brands and royalty lines specifically. Was that a dynamic that emerged late in the quarter or do you simply now have more visibility on the continuation of some of the favorable trends that you’re seeing versus what you had previously anticipated I guess in early March when you provided initial 2023 guidance. And then just if you could provide a little bit more granularity in terms of some of the key drivers. Whether we’re talking about competitive wins in the generics business, benefit of contract pricing perhaps or just new launch dynamics, maybe just a little bit more granularity on where the actual overperformance is coming from. And I’ve got a couple of followups.

Nikhil Lalwani — Chief Executive Officer

Sure, good morning and thank you, Elliot. So, you know, to the first part of your question and maybe I’ll take the second part of your question, which is what are the specifics around these trends? So, look. ANI’s robust results in our generics established brands and other segments showcases our ability to leverage our U.S. manufacturing footprint and our agility in operations to deliver solutions to our customers. This has enabled us to capture market demand arising from the supply disruptions impacting patient access to much-needed medicines. We see this as a positive trend, impacting our business due to several structural factors. And there is a mix of factors, right. There are product-specific issues. There are manufacturing site related issues, arising from FDA audit outcomes. There are company-specific financial issues such as Chapter 11 and Chapter 7 situations and there are broader market-driven opportunities.

While the mix of these issues was changed, you know, this trend Is there, is here and may be likely to continue and ANI remains well-positioned with our U.S.-based manufacturing, dedication to supply-chain and manufacturing excellence and nimbleness as an organization to capture these opportunities. Now. I would also reiterate that first and foremost, first-quarter performance represents strength across all four businesses and as Steve noted in his remarks, this is reflective of organic growth of the company, right. And these include strength of new product launches in generics, the continued evolution of our Cortrophin launch and the impact of innovative go-to-market strategies in our established brands business. So that’s the second part of your question. Elliot.

And then on your first part on the what we know in March versus now, so look at any given point, we’re giving the best information available to us, right. So while this trend may have started earlier in the quarter, we wanted to give it some time before, you know, before we went ahead and reflected that, right. So our best thinking is reflected in the guidance we gave in March as we had more visibility where we’ve raise the guidance.

Elliot Wilbur — Raymond James — Analyst

Okay, thanks, Nikhil. Then a follow-up for Steve as well. Going back to the subject matter, I guess we discussed more than usual last quarter and that being cash-flow. Looks like you generated operating cash of just over $21 million in the in the quarter. Working capital, it looks like, it’s now neutral versus a negative as it’s been for several periods now. But you’re still seeing increases I guess in some of the larger working capital asset accounts. So just wondering with the increase in full-year EBITDA guidance, how should we be thinking about cash conversion and cash-flow performance versus what we saw in the first-quarter and are there any other chunkier items that may work to your benefit over the course of the year now that you’ve got that $20 million plus contingent liability on the balance sheet?

Stephen Carey — Chief Financial Officer

Yeah, Elliott, good morning. Thanks and thanks for the question. So, obviously, we’re very pleased with the cash conversion in the first-quarter. Again, we posted $21.4 million of cash from operations and it’s made — it’s dramatically in line with everything that we’ve discussed on the evolving calls throughout 2022 and the year end call just back in March, right. The 2022 era where the company was using significant amounts of cash to stand-up the Cortrophin Gel launch and to stand-up the rare disease business within ANI, those chapters are starting to be in the rear-view mirror, so to speak, right. So when you couple couple that track that we were on with, you know, a very significant and healthy quarter, you have a significant unlock of cash in the first-quarter.

Looking-forward, we would obviously expect that to track with our P&L guidance. So I think we’re very confident and having an increasing level of confidence in terms of the cash generation that we expect from the business as we look-forward to the next three quarters. Obviously cash tracks the P&L performance and lags it by a bit.

And to your question about chunky items, I think the only — a few that I would highlight, right, so I talked in the prepared comments about Novitium and contingent consideration. So we do anticipate we will have the two-year anniversary of the Novitium transaction in November of this year. And that will kick-off the first leg of contingent consideration payments to the selling shareholders. So we’re currently anticipating about a $12.5 million payment in this year. And that would be the very first payment due to the selling shareholders and there will be a second payment of a similar amount early in 2024. So we are clearly planning for those events and we’re clearly are more than happy to pay those contingent outflows because it’s very present indication of the strength of the transaction and the fact that the Novitium transaction has not only fulfilled their expectations but exceeded our expectations. as we’ve combined, right, great business into ANI.

So that’s one on the outflow. And then, obviously, we’ve talked about the Oakville closure, right, which is, from an operational perspective, is fully complete at this time. So it was completed, on-track and on-target with our timelines. That facility continues to be held-for-sale in Canada. Obviously, we can’t predict the exact timing of when that sale will close, but we expect a nice cash inflow from from that transaction.

Elliot Wilbur — Raymond James — Analyst

Okay, thanks. And then last question for Nikhil. You highlighted a lot of the pace, continued positive trends in the uptake of Cortrophin and specifically thinking about indications that new patient starts, new patient initiations were at record levels in April, do you have any sense as to whether or not these are due to therapy or treatment-naive patients versus potential switches from your competitor in the marketplace. And just the reason I ask the question, some of the data out there and read it’s relatively low frequency, may not be that high-quality. But some of the data shows fairly sharp uptick in terms of switches to Cortrophin from your competitor, not sure if that is accurate or not in terms of what you’re seeing. And if so, any thoughts as to what may have impacted that. Thanks.

Nikhil Lalwani — Chief Executive Officer

Thank you, Elliot, look, I think, it’s a mix. So it’s a mix of patients that are naive to therapy, as well as patients that are switching. What I will say is, there is as I was saying, we’ve ramped-up our efforts to increase awareness of Cortrophin Gel and obviously there’s an increase in the number of new prescribers, as well as repeat prescribers. And so with repeat prescribers, what you will see is that as they start using Cortrophin Gel and see the many parameters of the use right, the time from enrollment to fulfillment, the impact to the patient, the engagement with the company, I think all of those factors drives their — the HCP to think about shifting to usage, right, And as I also mentioned in my in my prepared remarks that there is a number of prescribers that used to use ACTH therapy, they had just stopped over the years or had reduced their usage significantly. And as we’ve ramped-up our increased awareness of Cortrophin Gel, you know. they have sort of reintroduced ACTH into their suite of treatment for the use for patients — of course for appropriate patients in need and that’s why, you’re seeing the. year-on-year monthly unit growth rate for 10 consecutive months according to IQVIA.

Operator

Thank you. We’ll take our next question from Vamil Divan with Guggenheim Securities. Please go-ahead.

Vamil Divan — Guggenheim Securities — Analyst

Great, thanks for taking my question. Nice results of the year. So a couple questions. just want to dig into a little bit more. One on the Cortrophin. I appreciate, you’re not saying too much for competitive reasons, I’m just wondering if you could share any sort of just general feedback from providers as you time up, some people may be returning to this market, patients returning, and then also new providers potentially — just feedback you’re getting in terms of how the product performing relative to maybe prior experience with the competitor and also is there any sort of added cost which you assume behind the launch, sort of the rest of the year or in terms of something that scales first of all in place now, but anything else down or and a sort of marketing meaningful increases over what we saw in 1Q.

And then the second question is just more general again getting back to the cash discussion. I’m just curious if you can talk a little bit more about your comfort level around your leverage ratio as you think about investing behind the Cortrophin, but also potentially bringing in additional rare disease assets. What kind of level and [Indecipherable] $300 million, [Indecipherable] $240 or so of cash plus the accounts receivable, just curious how much added leverage you’d be comfortable taking. Thank you.

Nikhil Lalwani — Chief Executive Officer

Sure, thank you Vamil, and good morning. So let me answer your second question and then your first. And I’ll let Steve start on the last one around the leverage ratio. So, we are not adding any costs. When we had spoken at last quarter’s earnings call for Cortrophin SG&As, we had indicated that we expect 10% higher than previous year SG&A. And I think it’s in our press release still that we will maintain the SG&A spend at that. So no added costs. So that’s the answer to that question. And look, in terms of general feedback from prescribers, I think it’s a few things. So first is that they comment on the — on our sales force and our sales force is highly experienced and highly trained. And they focused the discussions on patient need, right. And on the ACTH category.

And I think that that engagement is one that they speak very highly of, right, because this is a rare disease product, right and it’s for identifying the appropriate patients in need. So I think that’s the first thing they speak about.

I think the second, as I mentioned in my remarks that central to our The Cortrophin Gel launch has been our efforts around market access and improving enrollment to fulfillment process. And I think they comment about that and the reduced sort of burden that they have there.

I think third, equally important is, they talk about the reduced cost to the healthcare system and the reduced cost to the patient and favorability of that. And of course, you know again, I have to be careful about what I say here, but in underlying all of this is the impact to the patient, right, the patients that they’re treating. And these are complex cases and they are patients dealing with complex indications and co-morbidities. And the impact that they’re seeing on those patients is part of it. So I think those would be the the feedback that we’re getting from the HCPs.

And then your last question on leverage ratios, obviously, Steve will jump in which is, with the EBITDA of $33 million that has a very favorable impact and also our guidance has a very favorable impact on our leverage ratio, but I will let Steve comment on how we think about that going-forward.

Stephen Carey — Chief Financial Officer

Sure, thanks, and good morning, Vamil. Yeah. I think it’s important because I think your question it kind of reads together two aspects, right, the cash, the leverage and then also just kind of the BD part, right, as we look to build-out the rare disease business. So I think it’s important to know, right, as I answered that there’s no black and white. There is no absolute. We’re obviously going to retain flexibility, right, as we approach different business development opportunities. And every opportunity, right, would have a different profile in terms of the asset that we’re approaching, what is it’s cash-flow profile. So with those kind of caveats, I think obviously, we’re pleased with the cash position as of March 31st, and the progress that we’ve made there. As I just answered with Elliot’s question, this is a strong platform for us to build that cash position and as we look to future quarters. And, we will always remain focused and balanced in terms of our leverage position. For folks that have been following the company for some time, I think one of the hallmarks of ANI and how we’ve navigated the market throughout the years is to remain a bit conservative on leverage. And as we spoke about on these calls and with our constituents, right, in 2022, we were a bit forced, if you will, to go beyond our comfort so in order to do what was right for the business and the stand-up rare disease and to launch Cortrophin with an eye towards strength and with an eye towards doing the Cortrophin launch correctly, right, out-of-the gate. And so we’re very pleased that as we look look-forward. At the current moment, we’re delevering organically as projected, and we’re very pleased that that will continue to occur here in 2023. All of these factors, right, put us in a better position — in a better position of strength to approach business development opportunities.

And you may know right as you going back through the prepared comments for today, I did cite the on tax credit facility of $40 million. That’s the first time in a while, right. I wasn’t stating that in our 2022 earnings calls, because, Nikhil and I, would not be comfortable tapping into that, given the leverage levels that we were at in 2022. And so again, all these factors, we would expect looking-forward, right. That credit facility may be another piece of the puzzle for us as we look to continue to grow the business.

Vamil Divan — Guggenheim Securities — Analyst

Okay, thanks, that’s all, very helpful. Thank you.

Operator

And then we will take our next question from Brandon Folkes with Cantor Fitzgerald. Please go-ahead.

Brandon Folkes — Cantor Fitzgerald — Analyst

All right, thanks taking my questions and congratulations on the very strong results. Maybe, firstly, from me, just on the gross margin, this is very strong in the quarter. Can you just elaborate on why we’re not expecting further gross margin expansion in your updated guidance, just given the increased contribution of Cortrophin through the first of the year. And what is expected? Could Cortrophin to have better gross margins than the established brands products. Along those lines, can you just talk if there’s any onetime price benefit in the quarter in the base business, especially due to some of the supply disruptions you mentioned.

And maybe, I’ll ask my second question, because it may go hand-in-hand with that. Can you just help me further understand the guidance. It just seems if I take the 1Q base business run-rate and I add the low-end of your Cortrophin guidance, we’re getting close to sort of $440 million in revenue. So can you just talk either perhaps some of the one timers in1Q, headwinds in the base business for the rest of the year or is this just sort of conservatism given how early we are in the year? Thank you. Yeah, thanks, Brandon. So why don’t I start and Steve you can jump in. So, our guidance, implicit in your question one and three on the evolution of gross margin and then the question on guidance is really the question on guidance And our guidance is based on several factors, right, as you would appreciate. And this includes accelerated launch momentum that we’re seeing with Cortrophin Gel. We’ve had a record number of new cases initiated in Q1 2023, but also a record number of new patient starts and new cases initiated in April of 2023, right, which is the month that finished eight days ago. And so that’s the first part of set of factors. And then the second is that the impact of the trend that we’re seeing across generics and established brands are several favorable structural factors such as product-specific issues, manufacturing site-related issues arising from FDA audit outcomes, company-specific financial issues such as Chapter 11 and Chapter 7 situations and broader market-driven opportunities. And our guidance, that will calibrate the upsides from the same, right. And so that answers hopefully question one and three. And then your question around price benefits, again, for competitive sensitivity reasons, we’d like to get that question a pass. I think it’s — the favorability is largely driven by volume, right. And we wouldn’t want to add more specifics around the price, yeah. Steve, would you like to add anything?

Stephen Carey — Chief Financial Officer

No I think you covered, Nikhil the question. And what we’re prepared to speak to this morning.

Operator

We’ll take our next question from Greg Fraser with Truist Securities. Please go-ahead.

Greg Fraser — Greg Fraser — Analyst

Good morning, folks, Thanks for taking the questions. Can you comment on how to think about the quarterly cadence of generic sales for the balance of the year? And then on the significant growth for established brands and other revenue, was that growth driven primarily by established brands as opposed to the other segments have royalties and Contract manufacturing and was basically no longer breaking those out separately. Just wanted to know if there’s something chunky in there that drove the first-quarter outperformance. And I’m not sure if I missed this, but did you comment on the timeline or give any updates on 505(b) (2) programs. And if not, can you give us an update on those. Thank you.

Nikhil Lalwani — Chief Executive Officer

All right. So, and good morning and thank you, Greg. The three questions. So the first question is, timeline for 505(b) (2). We do not comment on it and at this point, we’re not sharing no information on that, even though we’ll come back when there is more to share on the 505(b) (2) launches.

Your first question on the quarterly cadence for generics, look, I think the — we’ve always talked about sustainable growth and for generic, it’s really about ensuring that we continue with our strong R&D growth engine, right; continue delivering on new launches; focusing on cost excellence by continuously reducing the costs. And therefore, being able to continue to supply and stay competitive and then third is supply security, right.

And with all the three — sort of three strategies, with the new product launch really at the heart and center of it, we believe that the erosion that we see in our business from generics will be overcome by the growth that we will get from new launches, from supply security and from cost excellence right, and so we will be able to grow the generics business, as we keep moving forward. So, that’s will be little bit about quarterly cadence.

And then on the question regarding where the upside from within the established brands royalties and other segment. While it’s was mixed, a good part of it is from the established brands segment.

Greg Fraser — Greg Fraser — Analyst

Thank you.

Nikhil Lalwani — Chief Executive Officer

Thanks, Greg.

Operator

And we’ll go next to Oren Livnat with HC Wainwright. Please go-ahead.

Oren Livnat — HC Wainwright — Analyst

I think I have a few. Just I guess build on the prior questions about, going-forward visibility, you’ve had outperformance from every line. But if we start with generics first, again, implied in your guidance is there is some conservatism looking-forward. Just can you talk about if you expect whatever disruptions happened, supply, bankruptcy, etc., does your guidance assume conservatively some normalization in the competitive landscape going-forward?

And then on the brand — legacy brand business, which is obviously a high-margin contributor going-forward, is that still a declining revenue line or do we think that has eroded in volume, offset by some pricing benefits. Is that a stable business going-forward and I have got a Cortrophin follow-ups.

Nikhil Lalwani — Chief Executive Officer

Okay. So I think your first question was on the trend. So, look, the impact of the trend, right, it has several favorable factors, structural factors that I spoke about a couple of times, right, product-specific issues, manufacturing site-related issues from FDA audit outcomes, company-specific financial issues., just Chapter 11 and Chapter 7 and broader market-driven opportunities. And so what you see in our guidance is a calibration of the upside from the same and then understanding of the mix of these issues and how that will percent. So that’s the answer to that question on continuity.

And then on the established brands, as we’ve spoken about before, there is a number of steps that we’re taking in our established brands business, right. So we have innovative go-to-market strategies for a bulk of our established brands. For our derm specific brands that we had acquired from Pandel a couple of years ago, we’ve launched a partnership. It’s now sort of with full flow with another company to do co-promotion. So that’s in full flow and obviously as we talked about the operational excellence to ensure that as customers need these products on a timely basis, being insured being able to have a robust local supply-chain that can provide these products on a timely basis to customers.

Operator

Okay and follow-ups, actually before I get to Cortrophin, in the past, you’ve talked about product concentration and no product exceeding X percent of total revenue. Can you update us on. I guess, the largest single contributor size percentage-wise in Q1?

Nikhil Lalwani — Chief Executive Officer

I think its Cortrophin by a long distance right?

Oren Livnat — HC Wainwright — Analyst

Aside from Cortrophin.

Nikhil Lalwani — Chief Executive Officer

Nikhil, I’d say we haven’t we haven’t highlighted billers products in the past and I’d say we’re still very pleased with the product diversification in the portfolio.

Oren Livnat — HC Wainwright — Analyst

Okay and moving on to Cortrophin, if I may. I know you’re not giving — I appreciate, you’re not giving us more granularity on specific patient add and doctor adds. But I guess, can you just characterize as that launch accelerated in Q1, does the pace of new initiations of actual therapy as you pull-through insurance adjudication, etc., has that outpaced or is at higher or lower I guess than the new patient referrals are prescribing adds, wherever they’re coming from. I’m sort of think about whether you sort of had a catch-up this quarter as you’ve pulled through existing prior demand or if it’s sort of steady-state on that front in terms of conversion and it’s really just organic end-user demand growth.

Nikhil Lalwani — Chief Executive Officer

Yeah, look, the growth that we’re seeing it’s not as simple as saying, what the pace of new patient adds, right, because there’s a number of other factors that go from new cases initiated to actually revenue-generating patients, right. It’s the mix of patients, the number of vials per patient, the number of patients that are revenue-generating and the time to therapy. So there is a number of different factors. I would say that it’s straightforward as you look at the — what we’ve done in Q1 and what we’re reiterating our guidance for the rest of the orders that we have high confidence in that that mix will continue. And I think one very important point is that our intention is to continue giving investors the best available information. And while we’re not giving the specific number, we’re making it clear that looking even in the month of April, we’ve had a record number of new patient starts and new cases initiated. And you don’t have that unless you had accelerating launch momentum. That’s as simple as that.

Oren Livnat — HC Wainwright — Analyst

Okay and you actually kind of segue way to my next question. You wee mentioning the sort of vials per patient, I guess, you call it units per patient. Can you just comment with, you know, not pricing per se, but are you seeing a material increase in Q1 and looking-forward in the sort of value per patient in terms of the kinds of indications that are getting prescribed and pull-through. We obviously did the big range and some indications have longer or higher dosing than others.

Stephen Carey — Chief Financial Officer

Yeah, Oren, no there is — we’re not necessarily seeing a difference in that dynamic. And then — what we’re seeing is not something that I’m prepared to for competitive reasons.

Oren Livnat — HC Wainwright — Analyst

And just lastly, I apologize for all the questions. But on the rare disease space, you sound pretty explicit that you are quite interested in looking at M&A and I’m just curious if you could talk about the high-end, things you’re looking at? Are we thinking about on-market products, maybe, that are underperforming or new launch situations. And are you more inclined towards partnership, co-promoting or helping commercialize the product for a company that’s not really set up to do so, as well as you or products and-or company acquisitions that might involve more integration activities?

Nikhil Lalwani — Chief Executive Officer

Yeah. That’s — thank you for that question, Oren. So, look, we are looking for assets that can leverage the strong rare disease infrastructure that we have built. And when I say that infrastructure, what I mean, you remember I, have spent — the earlier question was asked about HCP feedback. The first thing I highlighted was the highly experienced and expert sales force that we have. And we go into three different sales force and three different indications, neurology, nephrology and rheumatology. So the first person obvious, one would be to pick an asset that is either of these three and then obviously we just have pulmonology, although it’s some modest dedicated team. And so that is an asset that sort of goes into one of these ca;; sets, right. So that’s one. And I think the second part of it is just one that leverages our rare disease infrastructure, market access, patient support, specialty pharmacy distribution, right, compliance, medical affairs, all of that. And so basic fact they can leverage that too. So we’re looking at them actively exploring both sets of opportunities. I think that from your question around here, what kind of assets, look, we’re evaluating all and trying to sign that’s best for ANI, right. And so there are no — there’s no sort of — there is nothing that we’re blocking in that perspective.

Oren Livnat — HC Wainwright — Analyst

All right. Thanks so much. I appreciate it. Congrats on a good quarter.

Operator

And there are no further questions at this time. I will turn the call back over to Nikhil Lalwani for closing remarks.

Nikhil Lalwani — Chief Executive Officer

Yes, thank you everyone for joining our call this morning. Thank you to the folks who asked the questions. We appreciate it. And look, we just like to reiterate that ANI is well-positioned to continue delivering sustainable growth and serving patients in need and we look-forward to updating you on our progress. We appreciate your time and interest in ANI and thank you.

Operator

[Operator Closing Remarks]