Akorn Provides Fourth Quarter and Full Year 2019 Results

LAKE FOREST, Ill., Feb. 26, 2020 (GLOBE NEWSWIRE) -- Akorn, Inc. (Nasdaq: AKRX), a leading specialty pharmaceutical company, today announced its financial results for the quarter and year ended December 31, 2019.

Fourth Quarter 2019 Results and Recent Developments

• Net revenue was $162 million, an increase of $9 million, or 5.8%, compared to the fourth quarter of 2018.
• Net loss was $81 million compared to a net loss of $215 million in the fourth quarter of 2018.
• Adjusted EBITDA was $18 million compared to $(20) million in the fourth quarter of 2018.
• Reached an agreement with our lenders to execute a sale of Akorn’s business, potentially using Chapter 11 protection, as previously disclosed on the Company’s Form 8-K filed on February 12, 2020.

Douglas Boothe, Akorn’s President and Chief Executive Officer, stated, “Our fourth quarter and full year 2019 results reflect the operational progress achieved throughout the course of the year. As we move forward through the sale process, we will continue to fulfill contractual obligations to suppliers and customers and deliver safe and effective pharmaceutical products for patients that depend on them.”

Summary Financial Results for the Quarter Ended December 31, 2019:

Akorn reported net revenue of $162.3 million for the three month period ended December 31, 2019, representing an increase of $8.9 million, or 5.8%, as compared to net revenue of $153.4 million for the three month period ended December 31, 2018.  The increase in net revenue in the period was primarily due to increases of $8.7 million and $4.4 million in organic revenue and new products, respectively, partially offset by a decline in discontinued products revenue of $4.2 million.  The $8.7 million increase in organic revenue was due to approximately $14.5 million, or 9.8% of favorable price variance primarily due to price increases on certain exclusive products partially offset by $5.8 million, or 3.9% in volume decline.  The volume decline was principally due to the effect of competition on a number of products, including Myorisan^® and Amicar^® Tablets.

Consolidated gross profit for the quarter ended December 31, 2019 was $59.8 million, or 36.9% of net revenue, compared to $25.2 million, or 16.5% of net revenue, in the corresponding prior year quarter.  The increase in the gross profit percentage was principally due to favorable price and decreased costs associated with FDA compliance related improvement activities, partially offset by unfavorable product mix.

GAAP net loss for the fourth quarter 2019 was $(80.7) million, or $(0.64) per diluted share, compared to GAAP net loss of $(215.0) million, or $(1.71) per diluted share, in the same quarter of 2018.  Including a net adjustment of $71.9 million to net income for non-GAAP items, adjusted diluted earnings per share for the fourth quarter 2019 were $(0.07), compared to $(0.29) in the same quarter 2018, after a net adjustment of $179.2 million to net income for non-GAAP items.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $(42.5) million for the fourth quarter 2019, compared to $(174.1) million for the fourth quarter 2018.  Adjusted EBITDA, which is a non-GAAP measure used by management to evaluate the operations of the Akorn business, was $17.6 million for the fourth quarter 2019, compared to $(19.9) million for the fourth quarter 2018.  See “Non-GAAP Financial Measures” below.

Summary Financial Results for the Year Ended December 31, 2019:

Akorn reported net revenue was $682.4 million for the year ended December 31, 2019, representing a decrease of $11.6 million, or 1.7%, as compared to net revenue of $694.0 million for the year ended December 31, 2018.  The decrease in net revenue in the period was primarily due to $19.4 million and $4.2 million decline in discontinued products revenue and organic revenue, respectively, partially offset by $12.0 million increase in net revenue from new products.  The $19.4 million decline in discontinued products was primarily due to the product Methylene Blue.  The $4.2 million decline in organic revenue was due to approximately $81.1 million, or 12.2%, in volume declines mostly offset by $76.9 million, or 11.6% of favorable price variance primarily due to price increases on certain exclusive products.  The volume decline was principally due to the effect of competition on a number of products, including Amicar^® Tablets, Fluticasone Rx, Nembutal and Clobetasol Cream as well as supply shortfalls from the continued production ramp-up at our Somerset manufacturing facility.

Consolidated gross profit for the year ended December 31, 2019 was $252.7 million, or 37.0% of revenue, compared to $246.0 million, or 35.4% of revenue, for the year ended December 31, 2018.  The increase in the gross profit percentage was principally due to favorable price partially offset by unfavorable product mix and increased costs associated with FDA compliance related improvement activities.

GAAP net loss for 2019 was $(226.8) million, or $(1.80) per diluted share, compared to net loss of $(401.9) million, or $(3.21) per diluted share, for 2018.  After a net adjustment of $205.2 million to net income for non-GAAP items, adjusted diluted earnings per share for 2019 were $(0.17), compared to $(0.19) for 2018, after a net adjustment of $378.2 million to net income for non-GAAP items.

EBITDA was $(148.1) million for 2019, compared to $(309.5) million for 2018.  Adjusted EBITDA, which is a non-GAAP measure used by management to evaluate the performance of the Akorn business, was $78.2 million for 2019, compared to $49.3 million for 2018.  See “Non-GAAP Financial Measures” below.

About Akorn:

Akorn, Inc. is a specialty pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals. Additional information is available on Akorn’s website at www.akorn.com.

Non-GAAP Financial Measures:

To supplement Akorn’s financial results presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP (also referred to as “adjusted” or “non-GAAP adjusted”) financial measures in this press release and the accompanying tables, including (1) EBITDA, (2) adjusted EBITDA, (3) adjusted net loss, (4) adjusted diluted earnings per share, (5) net debt, and (6) net debt to adjusted EBITDA ratio.  These non-GAAP measures adjust for certain specified items that are described in this release.  The Company believes that each of these non-GAAP financial measures is helpful in understanding its past financial performance and potential future results.  The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for or superior to comparable GAAP measures.

Akorn’s management uses these measures in analyzing its business and financial condition.  Akorn’s management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn’s ongoing results of operations allowing investors to better compare the Company’s results from period to period.

Investors should note that these non-GAAP financial measures used to present financial guidance are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.  Investors should also note that these non-GAAP financial measures have no standardized meaning prescribed by GAAP and; therefore, have limits in their usefulness to investors.  In addition, from time-to-time in the future there may be other items that the Company may exclude for purposes of its non-GAAP financial measures; likewise, the Company may in the future cease to exclude items that it has historically excluded for purposes of its non-GAAP financial measures.  Because of the non-standardized definitions, the non-GAAP financial measures as used by Akorn in this press release and the accompanying tables may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by the Company’s competitors and other companies.

Set forth below is the definition of each non-GAAP financial measure as used by the Company in this press release and a full reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures.

EBITDA, as defined by the Company, represents net loss before net interest expense, provision (benefit) for income taxes and depreciation and amortization.

Adjusted EBITDA, as defined by the Company, is calculated as follows:

Net loss, (minus) plus:

Interest expense, net
Provision (benefit) for income taxes
Depreciation and amortization 
Non-cash expenses, such as impairment of long-lived assets, share-based compensation expense, and amortization of deferred financing costs 
Other adjustments, such as legal settlements, restatement expenses and various merger and acquisition-related expenses, employee retention expense, legal and financial advisory fees, fixed asset impairment, executive termination expenses, data integrity investigations & assessment, gain on disposal of fixed assets, and
Fresenius transaction & litigation

Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash or non-recurring operating expenses that have no impact on continuing cash flows as well as other items that are not expected to recur and therefore are not reflective of continuing operating performance.

Adjusted net (loss), as defined by the Company, is calculated as follows:

Net (loss), (minus) plus:

Amortization expense
Non-cash expenses, such as impairment of long-lived assets, share-based compensation expense, and amortization of deferred financing costs
Other adjustments, such as legal settlements, restatement expenses and various merger and acquisition-related expenses, employee retention expense, legal and financial advisory fees, fixed asset impairment, executive termination expenses, data integrity investigations & assessment, gain on disposal of fixed assets, and
Fresenius transaction & litigation
Less an estimated tax (benefit) provision, net of the benefit from utilizing net operating loss carry-forwards effected for the adjustments noted above

Adjusted diluted (loss) per share, as defined by the Company, is equal to adjusted net (loss) divided by the actual or anticipated diluted share count for the applicable period.  The Company believes that adjusted net (loss) and adjusted diluted (loss) per share are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance.

Net debt, as defined by the Company, is gross debt including Akorn’s term loan less cash and cash equivalents.

Net debt to adjusted EBITDA ratio, as defined by the Company, is net debt divided by the trailing twelve months adjusted EBITDA.

The shortcomings of non-GAAP financial measures as guidance or performance measures are that they provide a view of the Company’s results of operations without including all events during a period.  For example, adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the financial performance of the Company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense.  Adjusted net (loss) does not take into account non-cash expenses that reflect the amortization of past expenditures, or include share-based compensation, which is an important and material element of the Company’s compensation package for its directors, officers and other key employees.  Due to the inherent limitations of non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.  Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable GAAP measures as presented in this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains statements that may constitute “forward-looking statements”, including statements regarding the Company’s business plan, financial performance and the path and milestones for executing a sale of Akorn’s business, potentially through the filing of Chapter 11 cases under the U.S. Bankruptcy Code.  You can identify forward-looking statements by terminology such as “may,” “should,” “will,” “expect,” “continue,” “believe,” “seek,” “anticipate,” “estimate,” “intend,” “could,” “would,” “potential,” or the negative of such terms or other similar expressions.  These statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  A number of important factors could cause actual results of the Company and its subsidiaries to differ materially from those indicated by such forward-looking statements.  These factors include, but are not limited to: (i) the effect of the Delaware Court of Chancery’s October 1, 2018 decision against the Company and the Delaware Supreme Court’s December 7, 2018 order affirming the Chancery Court’s decision on the Company's ability to retain and hire key personnel, its ability to maintain relationships with its customers, suppliers and others with whom it does business, or its operating results and business generally, (ii) the risk that ongoing or future litigation against the defendants or related to the Chancery Court’s decision and Delaware Supreme Court’s affirmation may result in significant costs of defense, indemnification and/or liability, (iii) the outcome of the investigation conducted by the Company, with the assistance of outside consultants, into alleged breaches of FDA data integrity requirements relating to product development at the Company and any actions taken by the Company, third parties or the FDA as a result of such investigations, (iv) the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any, (v) the timing and success of product launches, (vi) difficulties or delays in manufacturing, (vii) the Company’s increased indebtedness and compliance with certain covenants and other obligations under the Second Amendment to Standstill Agreement and Third Amendment to Credit Agreement (the “Second Amended Standstill Agreement”), which create material uncertainties and risks to its growth and business outlook, (viii) the Company’s obligation under the Second Amended Standstill Agreement to pay certain fees and expenses and increased interest margin, (ix) the Company’s exploration of strategic alternatives, including the alternatives of seeking to restructure its indebtedness and/or implement a strategic transaction (including a sale of its assets) with the protections of a filing under Chapter 11 of the U.S. Bankruptcy Code, (x) the risk that the holders of a significant number of shares have opted out of and elected not to participate in or be bound by the settlement agreement with the putative class members in the pending securities class action (the “Settlement Agreement”), (xi) the risk that the Settlement Agreement may not obtain the necessary approval by the court or may be terminated in accordance with its terms, (xii) the risk that insurance proceeds, common shares or other consideration contemplated to be exchanged pursuant to the proposed settlement is not available at the appropriate time and (xiii) such other risks and uncertainties outlined in the risk factors detailed in Part I, Item 1A, “Risk Factors,” of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (as filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020) and other risk factors identified from time to time in the Company’s filings with the SEC.  Readers should carefully review these risk factors, and should not place undue reliance on the Company's forward-looking statements.  These forward-looking statements are based on information, plans and estimates at the date of this report.  The Company undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

AKORN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In Thousands, Except Per Share Data)

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CONSOLIDATED BALANCE SHEETS
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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Reconciliation of GAAP Net (LOSS) to Non-GAAP EBITDA and Adjusted EBITDA
(In Thousands)

The table below sets forth expenses included in Net (loss) that have not been included as adjustments to arrive at EBITDA and Adjusted EBITDA in the preceding table.

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Reconciliation of GAAP Net (Loss) to Non-GAAP Adjusted Net (Loss) and
Adjusted Diluted (Loss) Per Share
(In Thousands, Except Per Share Data)

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Reconciliation of GAAP Debt to Non-GAAP Net Debt and Net Debt to Adjusted EBITDA Ratio
(In Thousands, Except Net Debt to Adjusted EBITDA Ratio)

(1) Net debt, as defined by the Company, is gross debt including Akorn’s term loan balance less cash and cash equivalents.

(2) Net debt to Adjusted EBITDA ratio, as defined by the Company, is net debt divided by the trailing twelve months Adjusted EBITDA.

Investors/Media:
(847) 279-6162
Investor.relations@akorn.com