Small Cap ANI Pharmaceuticals

Since August 2015, many quality healthcare companies have realized substantial stock price pullbacks in spite of sound business plans and operations. After conducting my due diligence, I reinvested in several of my healthcare holdings and recently took new positions in several companies, including this one, ANI Pharmaceuticals, Inc. (ANIP), a largely unknown $390 million small cap, with a low 11.78 P/E, growing revenues, growing high margins, and a strong growth-oriented 2016 Financial Guidance.

During the following two years after a merger with a 1-for-6 reverse stock split on 7/18/13, ANIP stock skyrocketed from $7.15/share to $73.54/share on 7/31/15.
Since then, ANIP stock has pulled back to the low 30s. When it recently fell below $ 30/share, I initiated a new position.


ANI Pharmaceuticals (ANIP) is an integrated specialty pharmaceutical company developing, manufacturing, and marketing branded and generic prescription pharmaceuticals. The company focuses on niche and high barrier to entry opportunities including controlled substances, anti-cancer (oncolytics), hormones and steroids, and complex formulations. ANIP operates two pharmaceutical manufacturing facilities, located in Baudette, Minnesota, which are capable of producing oral solid dose products, as well as liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. The ANIP strategy is to use their assets to develop, acquire, manufacture, and market branded and generic specialty prescription pharmaceuticals.

Historically, on 4/12/13, ANI Pharmaceuticals acquired and merged with BioSante Pharmaceuticals, Inc., a publicly held company focused on developing high value, medically-needed product. In July 2013, stockholders approved a 1-for-6 stock split of ANIP common stock and class C special stock and name change to ANI Pharmaceuticals, Inc.

Products and Product Development Pipeline

As of December 31, 2015, ANIP products include the following generic and branded pharmaceuticals:

Generic Products
o Esterified Estrogen with Methyltestosterone
o Etodolac
o Flecainide
o Fluvoxamine
o Hydrocortisone Enema
o Methazolamide
o Metoclopramide Syrup
o Nimodipine
o Opium Tincture
o Oxycodone Oral Solution
o Propafenone
o Vancomycin

Branded Products
o Cortenema
o Lithobid
o Reglan
o Vancocin

A description of these products are provided at the end of this post.

ANIP’s pipeline consists of 85 products, 57 of which were acquired. Of these acquired products, the company expects that 48 can be commercialized based on CBE-30s (Changes Being Effected in 30 days) or prior approval supplements filed with the FDA.

In 2016, ANIP expects to file two prior approval supplements and two CBE-30s. The following table summarizes ANIP’s pipeline of products:

PRODUCTS	   ANIP  Partnered     Total
At FDA	              4	         2	   6
Development	      3	        19	  22
Acquired Products    57	         0	  57

The ANIP product development pipeline includes extended-release products, controlled substances, anti-cancers, oral solutions, suspensions and solid disposal forms. These 85 generic products address a total annual market size of about $ 4.5 billion, according to IMS Health data.

Contract Manufacturing

ANIP manufactures pharmaceutical products for several branded and generic companies, who outsource production in order to (a) free-up internal resources to focus on sales and marketing as well as research and development; (b) employ internal capacity to manufacture higher volume or more critical products; and (c) utilize ANIP specialized equipment and expertise.

Given its specialized manufacturing capabilities, ANIP focuses on attracting niche contract manufacturing opportunities that offer high margins.


ANIP customers purchase and distribute ANIP products. ANIP products are sold by four major retail pharmacy chains: Walgreens, CVS, RiteAid and Wal-Mart, and are included in the source programs of four major national wholesalers: Cardinal, McKesson, AmerisourceBergen and Morris Dickson. In addition, ANIP customers include national mail order houses, including Anda, ExpressScripts, and Omnicare, as well as group purchasing organizations.

In recent years, the wholesale distributor network for pharmaceutical products has been subject to increasing consolidation, which has increased the concentration of our wholesale customers. In addition, the number of retail market chains and, in particular, the number of independent drug stores and small chains, has decreased as retail consolidation has occurred, also increasing the concentration of our retail customers. As a result of this trend toward consolidation, a smaller number of companies each control a larger share of pharmaceutical distribution channels. For the year ended December 31, 2015, approximately 64% of ANIP net revenues were attributable to three wholesalers:
• McKesson Corporation (26%),
• Cardinal Health, Inc. (20%), and
• AmerisourceBergen Corporation (18%).

For the years ended December 31, 2014 and 2013, AmerisourceBergen Corporation, McKesson Corporation, and Cardinal Health, Inc. accounted for approximately 69% and 55% of ANIP net revenues, respectively. In addition, as noted below, ANIP customers also distribute ANIP products. The loss of any of these customers, including in their role as distributors, could have a material adverse effect on the ANIP business.

Due to a strategic partnership between Amerisource Bergen and Walgreens established in 2014, Amerisource Bergen has begun handling product distribution for Walgreens. Due to this and other strategic partnerships between wholesalers and pharmacy chains, ANIP has experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains.

Sales, Marketing, and Distribution

ANIP markets, sells, and distributes ANIP products in the United States. ANIP products are distributed through the following channels:

• Wholesalers. ANIP has contracts with four major wholesalers in the U.S.: Cardinal, McKesson, AmerisourceBergen, and Morris Dickson, as well as access to their respective retail source programs.

• Retail Market Chains. ANIP conducts business with four major retail chains in the U.S.: Walgreens, CVS, RiteAid, and Wal-Mart.

• Distributors and Mail Order Pharmacies. ANIP has contracts with several major distributors and mail order pharmacies in the U.S., including Anda, ExpressScripts, and Omnicare.

• Group Purchasing Organizations. ANIP has contracts with group purchasing organizations in the U.S. such as Premiere, MedAssets, Minnesota Multi-State, and the Federal Supply Schedule (“FSS”).


ANIP products face limited competition due to complexities in formulation, active pharmaceutical ingredient sourcing, materials handling and manufacturing, and regulatory hurdles. Nevertheless, ANIP competes with numerous other pharmaceutical companies, including large, global pharmaceutical manufacturers capable of addressing these complexities and hurdles with respect to products that ANIP currently produces and products that are in the ANIP pipeline. In addition, ANIP products are subject to competition from other generic products and non-prescription alternative therapies.

ANIP branded pharmaceutical products currently face competition from generic products and may continue to face competition from generic products in the future. In order to launch a generic product, a manufacturer must apply to the FDA for an Abbreviated New Drug Application (ANDA) showing that the generic product is therapeutically equivalent to the reference listed drug (RLD).

The primary means of competition among generic drug manufacturers are pricing, contract terms, service levels, and reliability. To compete effectively, ANIP seeks to consistently produce high-quality, reliable, and effective products. The company also establishs active working relationships with each of its customers, continually gather important market information in order to respond successfully to requests for proposals, maintain sufficient inventories to assure high service levels, and work to reduce product costs by sourcing and qualifying alternative suppliers whenever possible.

ANIP sales can be impacted by new studies that indicate that a competitor’s product has greater efficacy than one of ANIP products. If competitors introduce new products with therapeutic or cost advantages, ANIP products can be subject to progressive price reductions and/or decreased volume of sales.

Principal competitors for the pharmaceutical market in which ANIP does business include Amneal Pharmaceuticals, Creekwood Pharmaceuticals, Endo Pharmaceuticals, Glenmark Pharmaceuticals, Lannett, Mallinckrodt, Mylan, Par Pharmaceutical Companies, Purdue Pharma, Roxane Laboratories, Sandoz, Teva Pharmaceuticals, USA, and Watson Pharmaceuticals.

ANI Pharmaceuticals, Inc. CORPORATE PRESENTATION January 2016

For a quick overview, here’s an excellent recent corporate presentation that does not include FY 2015 and Q4 2015 results.…



Market Cap   $ 389.94M
52-wk high	73.54
26Feb2016	33.94
52-wk low	26.80
P/E (ttm)	11.78
FWD P/E	        10.13
P/B (mrq)	 2.48
P/S (ttm)	 4.88
EV/EBITDA (ttm)	 8.44


As shown in the following table, since 2013, ANIP has realized strong Y-o-Y growth in annual revenue, i.e., 86% and 36% for FY 2014 and 2015, respectively, and strong Y-o-Y growth in revenue for most quarters in 2014 and 2015. Corporate Financial Guidance projects FY 2016 annual total net revenues between $ 105 million and $ 120 million.

REVENUE $M        GAAP	Change
2016 Guidance  105-120	 	
FY 2015	        76.322	 36.4%
Q4 Dec 15	18.035	-14.3%
Q3 Sep 15	19.972	 14.9%
Q2 Jun 15	19.516	193.6%
Q1 Mar 15	18.799	 72.5%
FY 2014	        55.970	 86.1%
Q4 Dec 14	21.037	 99.8%
Q3 Sep 14	17.387	121.9%
Q2 Jun 14	 6.647	  8.0%
Q1 Mar 14	10.899	 95.9%
FY 2013	        30.082	
Q4 Dec 13	10.530	
Q3 Sep 13	 7.836	
Q2 Jun 13	 6.152	
Q1 Mar 13	 5.564	

The following table shows the company’s strong commitment and emphasis toward generic pharmaceutical products with substantial growth in net annual revenues of 86% and 54% for FY 2014 and 2015, respectively.

	                          2015    %       2014     %      2013
Operations 	                    $M  Change      $M   Change     $M
Generic pharmaceutical products	55.169	53.9%	35.852	 85.9%	19.281
Branded pharmaceutical products	11.003	-0.0%	11.01	226.7%	 3.37
Contract manufacturing	         4.883 -17.7%	 5.931	 -1.4%	 6.018
Contract services & other income 5.267	65.8%	 3.177  124.8%	 1.431
TOTAL NET REVENUES	        76.322	36.4%	55.97	 86.1%	30.082

GAAP and Non-GAAP Net Income and Earnings

While GAAP annual net income for FY 2015 declined 46%, the non-GAAP figures show an increase of 37%. [Note: ANIP provides non-GAAP financials only in its annual and quarterly press releases, e.g., here’s the latest that for the first time makes Y-o-Y comparisons:… ]

		        Y-o-Y		Y-o-Y
TTM	       33.360			
FY 2015	       15.375  -46.5%	31.445	36.9%
Q4 Dec 15	2.876		 6.042	
Q3 Sep 15	4.559		 9.293	
Q2 Jun 15	3.571		 6.305	
Q1 Mar 15	4.369		 6.620	
FY 2014	       28.747 27,020%	22.962	
Q4 Dec 14      21.005		 9.453	
Q3 Sep 14	6.746               NA			
Q2 Jun 14      -2.363               NA			
Q1 Mar 14	3.359               NA			
FY 2013	        0.106               NA			
Q4 Dec 13	3.430               			
Q3 Sep 13	1.191			
Q2 Jun 13      -4.583			
Q1 Mar 13				

GAAP annual diluted EPS decreased 49% from $ 2.59 for FY 2014 to $ 1.32 for FY 2015. However, non-GAAP annual diluted EPS for FY 2015 increased 31% from $ 2.09 to $ 2.72.…
For FY 2016, Corporate Financial Guidance estimates an adjusted non-GAAP diluted EPS between $ 2.94 and $ 3.31.

DILUTED		       Y-o-Y		 Y-o-Y
EPS	        GAAP  Change non-GAAP   Change
2016 Guidance .30 to         2.94 to
                 .65            3.31

FY 2015	        1.32	-49%	2.72	   31%
Q4 Dec 15	0.25		0.52	
Q3 Sep 15	0.39		0.80	
Q2 Jun 15	0.31		0.55	
Q1 Mar 15	0.38		0.57	
FY 2014	        2.59		2.08	
Q4 Dec 14	1.82		0.82	
Q3 Sep 14	0.59              NA			
Q2 Jun 14      -0.21              NA			
Q1 Mar 14	0.33              NA			
FY 2013	       -0.92              NA			
Q4 Dec 13	0.36              			
Q3 Sep 13	0.13            			
Q2 Jun 13				
Q1 Mar 13				


ANIP seeks high gross and operating margins which have realized strong growth from 2013 to 2015.

FY 2015	83.4%	 42.8%	   20.1%
FY 2014	79.5%	 35.7%	   51.4%
FY 2013	66.8%	  3.0%	    1.0%


With a current growth-oriented focus, ANIP has managed to create value for investors with positive ROIC-WACC spreads for FY 2014 and 2015.

	  ROIC	  WACC	    EVA
2/26/16	23.12%	21.79%	  1.33%
FY2015	23.59%	22.51%	  1.08%
FY2014	55.40%	31.58%	 23.82%
FY 2013	 4.85%	22.28%	-17.43%

Capital Sources, Acquisitions, Cash Flow and Debt

Equity Financing
In March 2014, ANIP closed public offering of common shares, netting $46.8 million.

Debt Financing
In December 2014, ANIP closed public offering of $143.8 million of convertible debt with simultaneous bond hedge and warrant transactions.

Major Acquisitions
o In December 2013, ANIP announced agreement to acquire 31 previously marketed generic products from Teva for $12.5 million and a percentage of future gross profits.
o In July 2014, ANIP acquired Lithobid® for $12 million.
In August 2014, ANIP acquired Vancocin® and related assets for $11 million.
o In March 2015, ANIP acquired approved ANDA for Flecainide tablets from Teva for $4.5 million and a percentage of future gross profits.
o In May 2015, ANIP acquired approved NDA for Testosterone Gel from Teva.
o In July 2015, ANIP acquired 22 previously marketed generic products from Teva for $25 million and a percentage of future gross profits.
o In January 2016, ANIP acquired two NDAs for Corticotrophin from Merck for $75 million and a percentage of future net sales.

Cash Flow
ANIP continues to show healthy free cash flows as it pursues and makes high quality acquisitions to expand its generic product line.

CASH FLOW	Total CF from	      Captial	      FCF
	Operatiing Activities	Expenditiures	
	          (million $)	  (million $)	(million $)
FY 2015	               17.26	       -2.18	      15.1
FY 2014	               22.03	       -1.12	      20.9
FY 2013	               -5.48	       -0.19	      -5.7

Debt and Liquidity

As a value investor, I usually am debt adverse and favor and look for companies with Total Debt/Equity ratios less than 40%. However, when I’m looking at a company like ANI Pharmaceuticals in obvious growth-oriented mode with a debt/equity of 74%, I allow myself flexibility to make exceptions and tradeoffs, especially if other financial metrics show overriding significant performance.

Regarding liquidity, ANIP is solid with a current ratio of 16.2.

Cash (mrq)	        150.91M
Total Debt (mrq)	115.19M
Debt/Equity (mrq)	74%
Current ratio (mrq)	16.2


Corporate management estimates and projects exceptionally strong growth for the 12 months ended 12/31/2016.…

• Total annual net revenues: $105 million to $112 million
• Net 2016 revenues for current 17 marketed products: $92 million to $98 million
• Net 2016 revenues for NEW product introductions: $13 million to $22 million
• Adjusted non-GAAP EBITDA: between $45 million to $53 million
• Adjusted non-GAAP net income per diluted share: $2.94 to $3.31
• Reported U.S. GAAP diluted EPS: $0.30 to $0.65


The core company management team (President/CEO Arthur Przbyl, CFO Charlotte Arnold and Operations VP James Marken) have been working together for the past six years and have brought their company to a high level of success today that appears most likely to continue in the future.


ANI Pharmaceuticals, Inc. is a $ 390 million small cap, operating in the black with increasing high gross and operating margins, a positive ROIC-WACC spread, strong FCF, a savvy acquisition strategy, solid liquidity, and at present an attractive low P/E.

Its 2016 Financial Guidance looks exceptionally strong and achievable in its niche with a very select small group of hybrid drug developers.

As always, conduct your own due diligence and decision-making.


Product descriptions

Esterified Estrogen with Methyltestosterone (“EEMT”) is used to treat moderate to severe vasomotor symptoms of menopause that are not improved by estrogen alone. For the year ended December 31, 2015, EEMT comprised 51% of ANIP net sales, versus 42% of net sales in 2014 and 33% of net sales in 2013.

Etodolac is used to treat mild to moderate pain caused by osteoarthritis and rheumatoid arthritis, as well as other conditions.

Flecainide is used to treat arrhythmia (irregular heartbeat) in patients and to help patients maintain a normal heart rate.

Fluvoxamine is used to treat patients with obsessive-compulsive disorder and social anxiety disorder. It is generally used when the patient’s symptoms interfere with the patient’s ability to function socially and occupationally.

Hydrocortisone Enema and its branded equivalent, Cortenema, are used for the treatment of ulcerative colitis, especially distal forms, including ulcerative proctitis, ulcerative proctosigmoiditis, and left-sided ulcerative colitis. The products have also proved useful in some cases involving the transverse and ascending colons.

Methazolamide is indicated in the treatment of ocular conditions where lowering intraocular pressure is likely to be of therapeutic benefit, such as chronic open-angle glaucoma, secondary glaucoma, and preoperatively in acute angle-closure glaucoma where lowering the intraocular pressure is desired before surgery.

Metoclopramide and its branded equivalent, Reglan, are prescribed for periods of four to twelve weeks in adults with symptomatic, documented gastroesophageal reflux who fail to respond to conventional therapy. The products relieve daytime heartburn and heartburn after meals and also help ulcers in the esophagus to heal. The products also relieve symptoms associated with acute and recurrent diabetic gastric stasis and help treat symptoms such as nausea, vomiting, heartburn, feeling full long after a meal, and loss of appetite.

Nimodipine is used to improve neurological outcomes by reducing the incidence and severity of ischemic deficits in patients with subarachnoid hemorrhage from ruptured brain aneurysms.

Opium Tincture is used is to treat diarrhea in adults by slowing the movement of the intestines and decreasing the number and frequency of bowel movements.

Oxycodone oral solution is used to relieve acute moderate to severe pain and chronic pain.

Propafenone is used to treat arrhythmia (irregular heartbeat) in patients and to help patients maintain a normal heart rate.
Lithobid is indicated in the treatment of manic episodes of bipolar disorder. Lithobid is also indicated as a maintenance treatment for individuals with a diagnosis of bipolar disorder. Maintenance therapy reduces the frequency and intensity of manic episodes.

Vancomycin and its branded equivalent, Vancocin, are indicated for the treatment of C. difficile-associated diarrhea, as well as enterocolitis caused by staphylococcus aureus (including methicillin-resistant strains). The capsules are not effective for other types of infections, as the drugs are not systematically absorbed.


Any idea what’s with the $11M interest expense in 2015? Or the $9.4M tax credit in 2014?