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ANI Pharmaceuticals Inc (ANIP) Q4 2022 Earnings Call Transcript

ANI Pharmaceuticals Inc Earnings Call - Final Transcript

ANI Pharmaceuticals Inc (NASDAQ:ANIP) Q4 2022 Earnings Call dated Mar. 09, 2023.

Corporate Participants:

Judy DiClemente — Investor Relations

Nikhil Lalwani — President and Chief Executive Officer

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Analysts:

Elliot Wilbur — Raymond James — Analyst

Vamil Divan — Guggenheim Securities — Analyst

Greg Fraser — Truist Securities — Analyst

Brandon Folkes — Cantor Fitzgerald — Analyst

Oren Livnat — H.C. Wainwright & Co. — Analyst

Presentation:

Operator

Good morning, everyone. My name is Ashley and I’ll be your conference operator. At this time, I’d like to welcome everyone to ANI Pharmaceuticals Fourth Quarter and Full Year 2022 Financial Results [Operator Instructions].

It is now my pleasure to turn the floor over to Ms. Judy DiClemente, Investor Relations for ANI Pharmaceuticals. Please go ahead.

Judy DiClemente — Investor Relations

Thank you, Ashley. Welcome to ANI Pharmaceuticals’ Q4 2022 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. ANI specifically disclaims 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 held and recorded on March 9, 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 will turn the call over to Nikhil Lalwani. Nikhil?

Nikhil Lalwani — President and Chief Executive Officer

Thank you, Judy. Good morning, everyone, and thank you for joining our call. 2022 was a landmark year for ANI. ANI passed clinical inflection points for our two critical growth drivers, our rare disease business with the successful launch of our foundational asset, Purified Cortrophin Gel, and our generics business with the acquisition and integration of Novitium, a best-in class generics R&D organization.

The significant achievements of 2022 further strengthened ANI to deliver sustainable competitive and profitable growth. We keep the patient at the center of everything we do, and remain deeply committed to providing high quality medicines to patients in need. I’m proud to report that for the full year 2022 ANI revenues totaled $316.4 million, surpassing the $300 million mark for the first time in the company’s history. This was an increase of over $100 million and 46% year-over-year. In the fourth quarter, revenues grew by nearly 55% to $94.2 million, a company record for quarterly revenues.

We delivered remarkable growth in adjusted non-GAAP EBITDA, from $4.3 million in the fourth quarter of 2022 to $23.3 million in the fourth quarter.

Let me now turn to the two strategic imperatives that we need to remain focused on to drive sustainable profitable and competitive growth in 2023 and beyond. The first imperative is scaling up our rare disease business. Our foundational asset, Purified Cortrophin Gel has experienced great momentum through the first year of launch. As you would expect, we made tweaks in our strategy as the launch unfolded.

We are pleased to report that the fourth quarter sales totaled $17.6 million, and for our first year of launch total sales were $41.7 million. Importantly, according to IQVIA, the ACTH Class of therapy has gone from consistent year-on year decline to year-over-year unit growth for the first time since 2019. From June 2022 to January 2023, the ACTH category has seen eight consecutive months of year-on year growth.

As of March, 8 cumulative new patient cases initiated increased to more than 1,120 with more than 510 unique prescribers. We are pleased that we have continued to see growth in the number of new unique prescribers and an increasing number of healthcare providers becoming repeat prescribers. Overall, we have seen prescriber interest in having an alternate treatment and the ACTH category continue to build.

Many of our prescribers had previously slowed or discontinued use of ACTH class and have restarted their use basically in therapy after the launch of Purified Cortrophin Gel. Prescriptions continue to be distributed across our targeted specialties, which includes certain chronic autoimmune disorders including acute exacerbations of multiple sclerosis and rheumatoid arthritis and excess urinary protein given nephrotic syndrome.

We have actively participated in the key national and regional medical conferences and have also initiated peer-to-peer programs across these specialties to educate physicians to increase awareness and understanding of Cortrophin Gel. Our peer-to-peer education progress has been well received with positive early feedback. We have invested and are continuing our efforts with the PBMs and payers across commercial, Medicaid and Medicare to expand market access for Cortrophin for the appropriate patients in need.

In addition, we have further strengthened our patient services and reimbursement team to support access to Cortrophin Gel and reduce the time taken from enrollment to fulfillment. In parallel, we have taken several initiatives to increase the effectiveness of our highly experienced sales force. In 2023, we will augment these efforts with enhanced data to improve prescriber targeting. With the momentum from our launch, we will also commence modest expansion of our sales force to focus on pulmonology.

Looking ahead, and as Steve will discuss shortly in more detail we expect 2023 revenue from Cortrophin Gel to be in the $80 million to $90 million range and the Cortrophin SG&A increase to be estimated at approximately 10%. We believe that ANI have built a rare disease platform successfully encompassing medical affairs, patient support, market access and specialty pharmacy distribution. The success of our foundational asset, Purified Cortrophin Gel has given the company confidence and we are actively exploring assets to acquire or partner off to leverage the platform and scale of the rare disease business.

Before I move on to our generics business, I would like to share an important point. During the early days of the launch we believed it was important to share detailed metrics to give investors insight into the dynamics of and progress of our launch. As the Cortrophin launch has gathered momentum and investors have been further confidence, we have decided to pare back sharing competitively sensitive detailed metrics such as number of prescribers and patient cases initiated.

Moving now to our second strategic imperative, driving generics business growth through superior new product launch execution, cost excellence and supply reliability. Sales of our generic pharmaceutical products grew 46% year-on year. We launched several limited competition new generics and retained a top 10 ranking in terms of ANDA approvals. In addition, ANI continues to retain the second ranking for competitive generic therapy approvals. This is especially impressive given the scale of our generics business and the large number of companies that compete in the US generics market.

In 2022, we filed 12 ANDAs and expect to continue investing in generic R&D to support our growth aspirations. We’re also making large strides in the area of cost excellence. The consolidation of our manufacturing network is on track. Manufacturing operations ceased at the Oakville, Ontario site in January 2023 and the relocation of Oakville products to US facilities have been completed. We are in active discussions with potential buyers for the Oakville site. And once fully executed this operational efficiency is expected to improve GAAP profitability and cash flow by $7 million to $8 million on an annualized basis.

Looking ahead, we have augmented our analytical and development facility in Chennai, India. The facility completed a successful FDA audit with the FDA in 2022. Today, over 60 skilled colleagues at the facility contribute materially to ANI’s efforts to serving patients in need. Over the years. ANI has built a strong reputation as a reliable supplier to patients and customers. We have invested in maintaining healthy inventory levels, both for materials and finished goods. All of our manufacturing facilities are in the US and our domestic supply chain further enhances our reliability as a supplier.

Finally, the strong compliance and audit history across our facilities exemplifies our efforts to deliver high-quality medicines. Most recently, during the fourth quarter, the FDA conducted a routine Good Manufacturing practices audit at our facility in Baudette, Minnesota. We have implemented all corrective and preventive actions needed and we have already received a favorable establishment inspection report, or EIR classifying that our Baudette facility is Voluntary Action Indicated, VAI.

I am proud of the dedicated work of our employees in our generics [Phonetic] business absolutely with over 20 million prescriptions filled using ANI medicines. In summary 2022 was a landmark year for ANI picking up fast, critical inflection points as the key driver of ANI’s growth, scaling up our rare disease business. In 2023, we look forward to building on the launch momentum of — building on the launch momentum of Cortrophin Gel and acquiring or partnering on other assets that leverage our rare disease platform.

We will now walk-through our detailed fourth quarter financial results and discuss our guidance for the coming year. Steve?

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Thank you, Nikhil, and good morning to everyone on the call. My comments this morning will be focused on the three months ended December 31, 2022 versus the prior year, unless otherwise noted.

First-off, as Nikhil indicated, 2022 has been a transformational year, as we successfully operationalized the Purified Cortrophin Gel launch and integrated the November 2021 acquisition of Novitium into our overall operation. These two platforms for growth drove ANI’s full year revenue to $316.4 million, marking the first time in ANI’s history that our full year revenue has surpassed $300 million. This represents a $100 million or 46% growth over the $216.1 million reported in 2021, and establishes a new base as the company continues its growth trajectory.

This full year achievement was built upon strong sequential quarterly growth, cumulating in $94.2 million of revenues for the three months ending December 31, 2022 up $33.3 million or 54.7% as compared to the prior year period, driven by strong gains in both of our operating segments. Revenues from Purified Cortrophin Gel led the way with $17.6 million in revenues in the quarter. Revenues of our generics established brands and other segment were up $16.7 million or 25.8% over the prior year driven by gains in our generic pharmaceutical product line, which was up $16.4 million or 39% year-over-year.

This increase was principally driven by revenues from multiple 2022 new product launches, and partially tempered by an increase in revenues from sales of several legacy ANI generic products.

Contract manufacturing revenues were $4 million during the fourth quarter of 2022, up 45.9% from the $2.8 million posted in the prior year period, primarily related to the addition of Novitium contract manufacturing revenues. Royalty and other revenues were $1.9 million in the current year quarter, in line with prior year levels. Tempering these growth drivers were net revenues for established brand pharmaceutical products at $12.7 million during the three months ended December 31, 2022. This represents a decrease of 13.3% compared to the $14.7 million for the same period in 2022, driven by lower aggregate unit volumes across the portfolio.

Operating expenses increased by approximately 9.2%, to $92.4 million for the three months ended December 31, 2022, from $84.7 million in the prior year period. Cost of sales, excluding depreciation and amortization increased by $2.4 million to $36.3 million in the fourth quarter of 2022 compared to $33.9 million in the prior year period, primarily due to increased sales volumes of generic products and sales of Purified Cortrophin Gel.

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 net revenues decreased 7.3 points from 45.7% in the fourth quarter of 2021 to 38.4% in the current year period, primarily as a result of favorable mix from the impact of sales of Purified Cortrophin Gel, coupled with the impact of new product launches in our generic franchise. These favorable impacts were partially offset by lower sales of established brand products in the period.

Research and development expenses were $5.2 million in the fourth quarter of 2020, an increase of $2.1 million from prior year primarily due to expenses related to an increased level of generic research and development activities during the current year period. Selling, general and administrative expenses increased by 8.1% to $33.2 million in the fourth quarter of 2022, compared to $30.7 million in the prior year quarter, primarily due to a 3.9 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, a full quarter’s worth of Novitium headcount and activities, as compared to a partial quarter in the prior year, and increased infrastructure to support the growth in our business.

These effects were partially offset by a $4.3 million decrease in transaction expenses related to the Novitium acquisition. Depreciation and amortization expense was $14.5 million for the three months ended December 31, 2022, compared to $13.7 million for the same period in 2021, an increase of $0.8 million, primarily due to the amortization of intangible assets acquired in the Novitium acquisition.

We recognized $1.6 million of restructuring expense in the fourth quarter of 2022 associated with the closure of our Oakville, Ontario facility. Costs included $0.3 million in termination benefits and $1.1 million in fixed asset accelerated depreciation. 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 the portions of the Canada results that are expected to be non-recurring post closure from our non-GAAP financial measures as detailed in the tables in this morning’s press release.

During the quarter ended December 31, 2022 we also recognized a non-cash fair-value adjustment of $1.6 million related to the contingent consideration recorded in conjunction with Novitium purchase accounting. Our $0.28 GAAP net loss per share for the quarter reflects significant amortization and purchase accounting-related charges from the Novitium acquisition, coupled with the sales and marketing expense behind our initial commercial launch of Cortrophin and Oakville-related restructuring activities.

On an adjusted non-GAAP basis, we had diluted earnings per share of $0.76 for the quarter compared to $0.06 in the prior year period. Adjusted non-GAAP EBITDA for the fourth quarter of 2022 of $23.3 million, more than tripled as compared to the $7.2 million posted in the fourth quarter of 2021. And on a sequential basis was up $4.9 million from $18.4 million in the third quarter of this year.

Also, please note, as disclosed in the footnotes to tables 3 and 4 to this morning’s press release, beginning in the fourth quarter of 2022 ANI no longer excludes expense for in-process research and development, Cortrophin pre-launch charges and Cortrophin sales and marketing expenses from its non-GAAP results. Historically, the company excluded these charges. These changes have been made to align with views expressed by the US Securities and Exchange Commission. Prior periods have been recast to reflect these changes.

From a balance sheet perspective, we exited the year with $48.2 million in unrestricted cash and cash equivalents, and $297 million in face value of outstanding debt which is due in November of 2027. As expected full year 2022 was a heavy cash utilization year with $31.2 million of cash used in operations as we invested behind the rare disease platform and had significant build of working capital due to rapidly accelerating sequential net revenues.

Finally, with this morning’s press release, we are instituting 2023 guidance. Total company net revenue between $360 million and $385 million, representing approximately 14% to 22% growth as compared to $316.4 million recognized in 2022. Cortrophin specific revenue guidance of between $80 million to $90 million, representing 92% to a 116% growth as compared to $41.7 million recognized in 2022. Total company non-GAAP gross margin between 59.5% and 61%. Total company adjusted non-GAAP EBITDA between $78 million and $88 million and adjusted non-GAAP diluted earnings per share between $2.09 and $2.59.

In addition, we currently anticipate between $16.8 million and $17.1 million shares outstanding, and an effective tax rate of approximately 24% prior to any Federal tax reform.

We will now open up the call to questions. Operator please announce the instructions.

Questions and Answers:

Operator

Certainly. [Operator Instructions]. And 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, I guess. Just thinking about expectations with respect to the base business, generics, legacy, brands, backing out the numbers, it looks like you’re expecting growth in mid to high single-digits and just wondering what the assumptions are as far as new approvals, new launches. Should we be expecting a similar pattern to what we’ve seen over the past 12 months, where we kind of see a steady cadence of smaller products coming out-of-the legacy Novitium pipeline? And is there anything that you could offer up in terms of visibility around any date, certain or larger launch opportunities that might enhance confidence in your modest growth expectations for that component of the business?

Nikhil Lalwani — President and Chief Executive Officer

Sure. Thank you, Elliot, and good morning. Look, I think the 2023 launch cadence will be similar to 2022, let’s say. You used the words a steady stream of launches. I think that over time the scale of those steady stream of launches will increase. But to the other part of your question there isn’t a date certain, or a large launch in sort of ’22. There are some sort of relatively larger launches, but nothing that stands out as substantially larger than everything else. In terms of concentration of new product launch revenues we currently don’t see that. But that’s not factored into — as an assumption into our guidance for the base business for our overhead and our overall guidance.

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Yeah. The other thing I would add, Nikhil and Elliot, and good morning, Elliot, is just as we look and unpack the different elements that roll up into that segment, I would say we’re expecting the growth in that segment to be led by the generic platform, and decline year-over-year in the established brands side of the business and the contract manufacturing side of the business. So there’s a little bit of mix rolling up into that segment observation that you made.

Elliot Wilbur — Raymond James — Analyst

Okay, thanks. And maybe just a couple of quick financial questions for yourself, Steve, just anything specifically you can or want to say about the kind of — it looks like the implied step-up in SG&A and R&D spend. So most of that is targeted to the expansion of Cortrophin call activities, but anything else that you could say there in terms of more specifics would be helpful.

And then you referenced working capital investment over the course of 2022. Looking at your adjusted net income expectations based on some of the outlook items that you’ve offered. I mean, looks like you guys are looking at around $40 million to $45 million in adjusted net income. Anything you could say with respect to anticipated cash conversion ratio there? I’m guessing maybe you would expect to actually over perform more than 100% cash conversion, but I just wanted to bounce that off you and see if there’s anything you can give us in terms of expected cash conversion, operating cash-flow generation in 2023.

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Sure, yes, sure thing. Yeah. And while we’re not offering specific SG&A and R&D guidance this morning, obviously the implication and the reality is that both of those line items will be growing year-over-year. On the R&D side it will be continued investment and increased investment in the R&D platform, principally on the generic side.

Obviously, the company has made very significant investment in the Novitium platform, one that we’re extremely happy with, and you can see the clear impacts of the performance of the Novitium platform in 2022. And so we’re focused on continuing to build and expand upon that platform.

And then on the SG&A side rate a touch driven by continued investment in the rare disease platform and year two of the Purified Cortrophin Gel launch. As Nikhil had indicated in his prepared statements, we see that direct investment in rare disease SG&A around. A 10% increase year-over-year. And then the other aspects of SG&A, right, or just as the company is growing at such fast clip, obviously, the support structure — the supporting functions, naturally grow around that growth in the business in order to adequately support the Company and its objectives.

And so that’s something that’s been happening throughout the course of 2022, and so there we kind of start off the year with an annualization effect of builds and decisions that were made in 2022. And then a touch more layered in, as we envision continued growth across our two growth platforms.

On the topic of cash, yeah, as we look-forward to 2023 we definitely envision getting back to positive cash flows. The cash flows in 2022 we’re expecting to be cash use year, as we stood up the rare disease business, right. If you unpack the performance on a quarterly basis again in 2022, right, as you have the rare disease and machinery up and running essentially from day one January first of 2022. Yet you have sequential revenues going from $1 million in the first quarter to over $17 million in the fourth. So that’s a very significant effect in terms of cash use, and then as Cortrophin reached its breakeven.

And as we look forward to 2023 we very much anticipate returning to favorable cash flows on a total company basis. I’m not going to specify versus your $245 [Phonetic] million of operational, but I would tell you we do expect reasonably strong cash flows in 2023, and then building off of that base.

Elliot Wilbur — Raymond James — Analyst

Okay, and just one last question around Cortrophin. Nikhil, is the expansion of the sales force, specifically targeted towards the pulmonologist community or would also enable you to enhance the frequency or expand the breadth of your current calling pattern? And historically, I seem to recall the pulmonology indication accounting for roughly 15% to 20% of the dollar value of the Acthar franchise [Phonetic]. And I just wanted to see if that’s sort of consistent with your read into that particular segment of the market as well? Thanks.

Nikhil Lalwani — President and Chief Executive Officer

Yeah, thanks, Elliot. So I think on your point on sales expansion, trying to find a balance between sharing information to assist the investment community, while not giving away competitively sensitive data. So with that understanding, pulmonology is a critical part of the expansion. However we may go beyond that too, but I think in terms of sharing pulmonology is the area that we’d like to share. And in terms of how much of Acthar sales it is, look, it’s material enough for us to as a sector or indication for us to say, hey, we’ll have dedicated sales force for it and in terms of expanding and to reach those patients.

Operator

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

Vamil Divan — Guggenheim Securities — Analyst

Great, thanks for taking the question. So maybe just a couple more following-up on the Cortrophin launch. And I appreciate your comments on not wanting to share too much competitive information. But a couple of questions, just following up on what you did say. Can you maybe just comment a little bit on what you’re seeing sort of in the field, as physicians are sort of deciding between Cortrophin Gel and competing options? Nice to see the growth return in that market. But in terms of differentiation, what is sort of driving the decision here, for Cortrophin?

And then just a second one, again as much as you’re willing to share, kind of baked into your guidance or any comments on what you’re assuming around the gross-to-net would be helpful just for us, if you want to comment? Thanks.

Nikhil Lalwani — President and Chief Executive Officer

Sure, good morning, Vamil, and welcome to your first ANI earnings call. Your two questions on the gross-to-net, we are again, back to the competitive point, we’re not sharing that information at this time. And then in terms of dynamic with old prescribers, we are continuing to see growth both in the number of unique prescribers, our new unique prescribers as well as healthcare providers becoming repeat prescribers. As they use it, they see the benefit and then they use it.

And then the other thing to share is that we’ve seen the prescriber interest in having an alternate treatment in the ACTH category continue to build, and many of our prescribers had previously slowed or discontinued the use of the ACTH class, prior to our launch. And once we launched and as we created awareness around Cortrophin Gel and the ACTH class they have restarted their use of ACTH therapy. Of course this is — all this is for the appropriate patients in need. And when you think of that, right, and this is why the point on the class and the growth in the class eight months according to IQVIA, year-on year growth on a monthly basis.

So in monthly growth from a year-on year basis. I think as you think of that, I think the important point to bear in mind is that if you look a few years ago, the number of patients that were benefiting from ACTH therapy was significantly higher than where we are today. And so that tells you that again, as we’re seeing this class grow, that is the prescriber interests in ACTH class and for appropriate patients is it continues to build.

Vamil Divan — Guggenheim Securities — Analyst

Okay, all right. Thanks so much for the insights.

Nikhil Lalwani — President and Chief Executive Officer

Thank you Vamil.

Operator

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

Greg Fraser — Truist Securities — Analyst

Hey, good morning folks. Thanks for taking the questions. On Cortrophin, can you comment on the competitive environment? I’m not sure if I missed that. And just what you’re seeing from the incumbent in terms of strategy to defend this business?

Nikhil Lalwani — President and Chief Executive Officer

Yeah, just cut to the chase. And good morning, Greg. We’re, again trying to find balance between sharing information that’s helps us with the investment community while not giving away competitively sensitive data. We know that our competitors are listening into this call.

I think look, from the way we see it, and obviously they did comment on this publicly, I think, day before yesterday, and then also a week ago, that they’re seeing stabilization on the demand and growth in the overall class, and that they believe, I think we’re all about trying to increase the number of patients that can — appropriate patients that can benefit from this therapy, right. And I think that’s it, I think, yeah, that’s what I feel comfortable sharing at this time.

Greg Fraser — Truist Securities — Analyst

Got it. This may fall under the same competitive, sensitive category, but can you talk about the number of docs, that you’ve been calling on and how that number — the number of prescribers, that 510 compare with the overall calling?

Nikhil Lalwani — President and Chief Executive Officer

Yeah. Definitely competitively sensitive information. So we’ll be steering clear of that. Thank you for understanding.

Greg Fraser — Truist Securities — Analyst

Right. Sure. Appreciate, okay. With that just the new patient starts, have those been ramping similarly with the case initiations, it gets better, are payer approvals coming through?

Nikhil Lalwani — President and Chief Executive Officer

Right. Yeah. I think that the new patient starts are ramping and I think one of the things that we will see in 2023 is that the new patient starts in Q4 will continue to as — depending on what kind of indication they are on, the refill vials will keep this sort of coming from those. So our team obviously is focused on increasingly awareness and understanding of Cortrophin Gel and there are as you were pointing out, there’s a number of factors that drive, from the number of cases initiated to cases that meet the prior authorization criteria and are approved by insurance plans and the time to dispense with the first vial.

And then there’s also variation in terms of the indication mix, right. So how many MS Patients versus RA patients versus Lupus patients versus nephrotic syndrome patients. And the number of vials used for each indication varies. And also then patients getting vials for patient assistance program.

Greg Fraser — Truist Securities — Analyst

Sure. All right. Thanks for the color. Wanted to ask one more question. When do you expect the operational efficiencies from the consolidation of the Novitium [Phonetic] manufacturing network to fully materialize? Thank you.

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Hi, I can grab that one. Yeah, good morning Greg and thanks for the question. Yeah, the full GAAP impact, and most importantly, the cash flow impact from consolidating manufacturing and closing of Oakville facility will start to accrue into the results in 2023. Our operational plans to wind down the facility have tracked very much according to plan and we are in the final days of manufacturing completed early this quarter and we’re in the process of moving and selling off certain fixed assets, et cetera.

So we are in the final days of the wind down plan as we speak. So that cash flow impact will start to accrue in 2023, and certainly GAAP results on the P&L will accrue in. As you know, Greg, on the non-GAAP results, in the non-GAAP EBITDA and non-GAAP EPS we’ve been adding back certain portions of those savings, the impact of non-recurring costs. On the CDMO side in Canada, we’ve been adding those taxes the second-quarter of 2022. So a portion of that impact and effect is already reflected in the non-GAAP results.

Nikhil Lalwani — President and Chief Executive Officer

Before we move on, Greg. I think, just coming back to your question on competitive dynamics, just to be again to try and be helpful to the investment community. I would point you to the fact that from — according to IQVIA eight months consecutively we’ve seen year-on year growth in the class. So that’s one data point. You also see the relative market share. That’s another bit that’s in the public domain. And then the third one is claims, tracking the claims and that gives you another data point.

And finally, obviously you see the published price. I mean these are points that are available in the public domain that would be helpful to point to the competitive dynamic. And again the overall, as we see at, right that the. Number of patients that were on ACTH therapy, three to four years ago was much higher than where they are today. And we’re increasing awareness and understanding of Cortrophin Gel to find the appropriate patients in need.

Greg Fraser — Truist Securities — Analyst

That’s helpful. Thank you.

Nikhil Lalwani — President and Chief Executive Officer

Yeah, thanks Greg.

Operator

And we’ll take our next question from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Brandon Folkes — Cantor Fitzgerald — Analyst

Hi, thanks taking my questions and congratulations on all the progress in 2022, And I do just want to come back to the cash flow conversion and generation. And you reported adjusted EBITDA, I think of $56 million, operating cash burn. I think I heard you say, Steve, of $31 million. Can you just elaborate on the moving pieces regarding cash flow generation in 2023? I didn’t hear you talking about getting that cash flow generation and strong cash-flow generation at best. But just maybe help us bridge that $87 billion gap between adjusted. EBITDA in 2022 and operating cash-flow? Is it really just the interest payments and working capital build?

And then, why should we not expect to continue to see a working capital build in ’23 will be perhaps lower than 2022, but just given the growth trajectory of your ’23 guidance? And then maybe what we are expecting for 2024? I know that’s a lot in there, but maybe just tack on top of that then how is your flexibility to bring in additional assets as you finance this organic growth and service it? Thank you.

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Yeah, thanks. Brandon. Yeah I think the biggest part of the bridge that you described is the change in working capital, right. And I think you have to understand that there’s been extreme acceleration in sequential performance, both quarterly, right. If you look at the quarters obviously out in the public domain. The Company posted $94 million in sales versus $64.5 million in the first quarter of this year. And when you look at that year-over-year, as we said on the call, fourth quarter revenues are up $33 million year-over-year. And so at December 31 balance sheet, a large portion of that sales gain year-over-year is sitting in AR.

On top of that we, on the inventory side of working capital, we had a tremendous expansion of the business across both lines. So on the generic side, obviously, we’ve launched over 20 products in 2022. So there is working capital builds on inventory to support those product launches, and obviously the effect on AR as we discussed.

And then on the Purified Cortrophin Gel side that’s a product where supply chain is extremely important and the production of inventory it kind of happens more periodically given the specialized nature of that product. So you can have a lumpiness in the inventory purchases on the Cortrophin side. So those impacts are very real, and they are very significant when you look at that quarterly progression. And as you could imagine, right, if you were to unpack the fourth quarter especially for those growth platforms, right, there tends to be fixed sequential growth within the months as well.

And then on total company cash flows obviously the second biggest build, if you will in 2022 is on debt financing and servicing the debt finance bill. So that cost just shy of $24 million on interest, and then $3 million of debt principal pay down. So those are the biggest impacts of cash flow in 2022. As we look-forward to 2023, you’re correct we do expect to have continued sequential build. I think, right the impacts of the growth — overall growth in the business in 2022 will start to manifest more in the cash flow and in cash balance. And so we do expect that. As absolute growth percentages moderate a touch, we do expect that working capital component to be less severe than it was this year.

Nikhil Lalwani — President and Chief Executive Officer

Just one other thing to add, Brandon and good morning, is that we also have the sale of the Oakville facility, a positive cash flow item to think about.

Brandon Folkes — Cantor Fitzgerald — Analyst

Right, thank you very much both of you. Very helpful, and congrats again on the progress.

Nikhil Lalwani — President and Chief Executive Officer

Thank you, Brandon.

Operator

And we’ll take our next question from Oren Livnat with H. C. Wainwright. Please go ahead.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Thanks. I have a couple. On Cortrophin, I understand you have to be keeping close to the vest competitively here, but just in general on approval of coverage trends. Are those timelines shrinking materially? And you discussed you are continuing to work to improve coverage and access. How would you characterize your, I guess, without specifics, but just your relative positioning to Acthar at launch, and now and should we expect any material changes in Q1 whether normal seasonal headwinds from resetting the plan and prior-offs et-cetera or actual potential tailwinds with new coverage wins kicking-in? And I have a follow-up. Thanks.

Nikhil Lalwani — President and Chief Executive Officer

Yeah good morning, Oren, and thank you for your questions. Yeah, look, again the specifics on market access and relative coverage position is clearly competitively sensitive information. I think that as I mentioned during my prepared remarks that we’re continuing to work to increase and improve the market access for patients in need, both with coverage decisions, as well as what’s helping through our reimbursement team, just helping to reduce the time from enrollment to fulfillment.

I should probably steer clear of giving any further specifics beyond that, because last time I checked, folks from Mallinckrodt [Phonetic] were actually listening into my call

Oren Livnat — H.C. Wainwright & Co. — Analyst

But in terms of the seasonality in Q1. I mean we normally, especially in rare expensive drugs we expect a headwind in Q1. Should we just make a standard assumption that that’s the case for your product like most or since as you’re entering your first full year, are you hoping to have a new win?

Nikhil Lalwani — President and Chief Executive Officer

So I think you’re exactly right that the — there is a dynamic that’s typical for rare disease launches between Q4 and Q1, such as patients switching in transplant and the impact of that. I think that ANI’s rare disease product will follow suit on that.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Perfect. And you did mention bolstering the pulmonology support. And I think it’s pretty vague, but maybe other areas I’m assuming you’re referring to whatever differentiation you have indication wise versus Acthar, which I guess is not competitive information, it’s in the label. So maybe you could talk about it. How material do you view the opportunity, and any differentiated indications you have versus Acthar?

Nikhil Lalwani — President and Chief Executive Officer

Yeah, we will not — you’re right. So it is on the label and we do have differentiated indications versus Acthar. So we’re not sharing anything at this time. And I think the second part on pulmonology, as well as the other indications, I think, yeah we pointed you in the direction of the modest sales force expansion in the area of pulmonology and I think that’s appropriate to share.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Okay. And then just couple of financial ones or more operating leverage in 2023. What are the biggest drivers there in terms of the ranges, bull and bear case scenarios margin-wise? Is it just how much we choose to invest on the opex side or is there some material variability in the gross margins of the underlying business units? Actually I think I missed in your remarks, did you give company gross margin guidance there? And on generics specifically, just directionally, given you’re launching — expect to launch competitive generic therapy, is a possible gross margins overall the generic business increase in 2023 or is that — would that be too aggressive an assumption? And should we assume that they are flat at best?

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Yeah, good morning, Oren. So yes, we did comment on total company gross margin profile. And we traded that at 59.5% to 61%. And that would be on a non-GAAP basis. And as you think about the different puts and takes in the ranges in the guidance, certainly one of them is just how the sales mix does play out, as we’ve talked about in the past. Purified Cortrophin Gel is a favorable input as it grows, to our overall company gross margin profile. And however, there is a touch of headwind year-over-year, as I had cited in Elliot’s question at the top of the Q&A in our kind of other revenues categories, right.

The other end of — one that I didn’t cite on Elliot’s call, which has remained is in the area of royalties. So we do expect royalty income to decline year-over-year and obviously royalty income has 100% gross margin profile. And then as our established brands business, which has a high brand margin profile tends to be a declining asset year-over-year without business development impact on it. And so there is puts and takes in that gross margin profile guidance.

And then the other aspects are just the implied ranges again, we haven’t given SG&A and R&D guidance right. But the implied range is that kind of total opex. Those are relatively tight ranges, but the decision there, and as we’ve said we’re very focused on continuing to invest behind the two growth platforms. And this is our point-of-view at a moment in time right. Obviously as the year develops and we get more experience under our belt with the performance and the continued trajectory, obviously, we’ll update as appropriate.

Oren Livnat — H.C. Wainwright & Co. — Analyst

And can you comment on the directionality of generic gross margins or no?

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Yes, right, yeah. Your question so I would say gross margins for the generic business can absolutely expand and the first thing that I would point to there is just the overall aggregate age of the portfolio. As you know gross margin profiles in generics, which tend to be best at the launch date, and then as competitive pressures kick in, and as time goes on you would have margin compression. And so as we are in an era of multiple generic launches off the strength of the R&D platforms, that lowers the aggregate age of our portfolio. And is a positive contributor to the generics’ gross margin profile.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Great. And if I may —

Stephen P. Carey — Senior Vice President and Chief Financial Officer

I mean just — so just to clarify, build on what Steve said, he says that it can expand but we haven’t given specific guidance on the mix right. We’re giving you what the mix of the three year is, right. Although you have the moving parts there.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Yeah. No promises in generics. Building on everyone’s questions on cash, look, I’m not an accountant. I’m sorry, if this is a dumb question, but just when we talk about besides the investments in inventory and other working capital investments, when you just talk about accounts receivable and how that’s grown over the year, just to clarify, is that really just a function of time and growth of revenue, net payment terms, and obviously a rapidly-growing top line? Or is there potentially any difference in the regular collection cycle with the new orphan business versus the legacy generic? Is there something unique about accounts receivable or collections on the orphan side?

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Yeah, sure. So I’ll answer the first part is in 2022, the utilization of cash and what’s sitting in AR is largely driven, by just the normal cycle and significantly accelerating sequential growth. Again even within the month. In terms of looking forward and as Purified Cortrophin Gel becomes a bigger overall mix of our business, I’ll say generally speaking, our contractual relationships and contractual terms for that type of branded product right are more favorable than we would expect in the generic business.

So that should be another underlying positive factor as Purified Cortrophin Gel grows as an overall percentage of our business.

Oren Livnat — H.C. Wainwright & Co. — Analyst

Thank you. That’s really helpful. I appreciate your patience with all the questions.

Stephen P. Carey — Senior Vice President and Chief Financial Officer

Thanks Oren, and very insightful questions. Thank you very much.

Operator

And we’ll take a follow-up question from Elliot Wilbur with Raymond James. Please go ahead.

Elliot Wilbur — Raymond James — Analyst

Thanks, real quickly, just going back to Cortrophin. As we think about modeling the trajectory of the product and the various treatment curves and persistence trends within your three primary indications. Any particular area where you’re seeing over performance perhaps versus the historical ACTH usage pattern? I guess some of the early data suggested relative usage in nephrotic syndrome is much higher than what we’ve seen with Acthar. So I don’t know if that’s just a function of not enough data points or if in fact that’s something that you’re seeing as well.

And then bigger picture question. As we start to see the ACTH market recover in terms of unit volumes anything you could say in terms of sort of the patient dynamics there? I understand most of these patients will be sort of new to therapy, meaning they haven’t been on either ACTH for probably for 12 months, but any perspective you can offer, at least at this early-stage in terms of your patients who may actually be treatment naive or not previously on ACTH therapy in terms of the mix?

And last question, sure I know the response already, but Acthar labeling is differentiated because it has the infantile spasm indication. Anything you can say about your plans in that area as well? Thanks.

Nikhil Lalwani — President and Chief Executive Officer

So, thank you. Thanks, Elliot. Insightful questions as always. Your question on, are we seeing sort of favorable dynamics on one patient, or one indication versus another versus what Acthar has historically had? We’ll probably need to steer clear of that, that points in the direction of focus that could be valuable for — so it’s competitively sensitive. So that’s one.

I think on patient dynamics, I think what we can share is there are prescribers who are writing or using ACTH class and they have either stopped or reduced the writing considerably, and their interest as we have driven greater understanding around Cortrophin Gel awareness and understanding of Cortrophin Gel, we’ve seen their interest continued to build, and that manifest there — and you can. So what I can share it is there are prescribers that are writing their first prescription of Cortrophin Gel and there are prescribers that are writing multiple prescriptions of Cortrophin Gel. And I guess what you can see from that is that the patients that they put on Cortrophin Gel potentially are seeing — I think that — I think that they see the impact of that and they make the decision to decide which are the appropriate patients to continue to put on Cortrophin Gel.

I think that’s what I can share. And then the last one, and again, look these are all dynamics, that we are — just to be clear, these are all dynamics that we are — we believe are favorable and therefore you see that our guidance for 2023 is 92% or 116% higher and that’s why you see — sorry 92%, just 116% higher than 2022. And that’s why you see the ACTH class has grown month-on month consecutively eight overall.

And then your third question on the IS indication, yeah, competitively sensitive information. So I just want to say before we move on, I just want to thank all of you for your patience and understanding as we — again we’re all trying to find that balance between getting the investment community as much information with sharing and competitively sensitive information in a two player market, right. So–

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 — President and Chief Executive Officer

Thank you, Ashley, and thank you everyone for joining our call this morning. ANI is well-positioned to deliver sustainable growth and we look forward to updating you on the continued progress. We appreciate your time and interest today in ANI. Thank you.

Operator

[Operator Closing Remarks]

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