EX-99.1 2 c53005exv99w1.htm EX-99.1 EX-99.1
Exhibit 99.1
At the Company:
Akorn, Inc.
Tim Dick, Chief Financial Officer
(847) 279-6150
FOR IMMEDIATE RELEASE
Akorn Reports Second Quarter 2009 Financial Results
LAKE FOREST, Ill — Akorn, Inc. (NASDAQ: AKRX) a specialty pharmaceutical company, today reported financial results for the second quarter ended June 30, 2009.
Total revenue for the second quarter 2009 was $16.3 million, versus $21.2 million in the second quarter 2008, representing a decrease of approximately 23%. The revenue decrease was across all segments with the exception of contract manufacturing. Td vaccine revenue decreased $2.2 million or 22% and ophthalmics and hospital drugs & injectables revenue decreased $2.8 million or 31% compared with the prior year period. The year-over-year decrease in ophthalmics is primarily due to a $1.1 million adjustment in the product returns reserve. The hospital drugs & injectables decrease is a result of lower hospital antidote sales compared with the prior year period. In particular, the 2008 recall of Becton Dickinson syringes used in our cyanide antidote kit has resulted in an additional $242,000 in product returns reserve in the second quarter 2009 as well as a temporary downturn in our cyanide antidote kit sales cycle which we expect to reverse in the second half of 2009.
Gross profit for the second quarter 2009 was $1.7 million compared to $4.8 million in the second quarter 2008, a decrease of 65%. The decrease in second quarter 2009 gross profit over the prior year period is primarily due to the $1.3 million increase in our product returns reserve, lower sales of our more profitable antidote products and a higher concentration of low margin contract manufacturing products. Gross margin for the second quarter 2009 was 10.2% versus 22.7% for the second quarter 2008.
During the second quarter 2009, the Company recognized equity earnings totaling $128,000 from its investment in the Akorn-Strides, LLC joint venture and marketing fee revenue of $140,000 for its commission on sales of joint venture products. The joint venture recognized net sales of approximately $1.9 million during second quarter 2009. Joint venture sales increased $1.0 million over first quarter 2009 as a result of our second quarter 2009 launch of two new injectable drugs: Vancomycin and Tobramycin.
The Company’s net loss was approximately $7.0 million in the second quarter 2009 compared to a net loss of $2.8 million in the second quarter 2008. This reflects the revenue and gross profit decreases discussed above as well as a $0.5 million increase in research and development, mainly due to additional product development fees. The second quarter 2009 net loss also includes $0.6 million in severance charges and legal fees related to the renegotiated MBL supply agreement.

 

 

Second quarter cash flow from operating activities was a use of $3.1 million. The revolving line of credit balance remained unchanged at $5.5 million compared to the quarter ended March 31, 2009, while the cash balance ended at $1.0 million on June 30, 2009 compared with $4.7 million on March 31, 2009. Strong first and second quarter Td vaccine sales and corresponding cash collections resulted in improvements to the balance sheet with a $3.6 million reduction in trade accounts receivable, a $5.1 million reduction in inventory and a decrease of $7.5 million in trade accounts payable over the quarter ended March 31, 2009.
The Company is finalizing amendments to the existing revolving line of credit with EJ Funds and subordinated debt with The John N. Kapoor Trust, the terms of which will be more fully described in the Company’s Form 10-Q, which will be filed by August 17th.
Raj Rai, Interim Chief Executive Officer stated, “We have continued to make progress in the second quarter on various fronts while we re-position the Company for growth. A summary of actions taken so far in order to address the operational challenges that the Company has faced include:
  •   Reduced the company workforce by approximately 7% and implemented additional cost reduction strategies throughout the organization to realize approximately $6 million in annualized cost savings;
 
  •   Negotiated additional funding from EJ Funds for growth initiatives;
 
  •   Re-aligned the sales force to focus on the ophthalmics and hospital drugs & injectables with incentives to grow high margin products;
 
  •   Implemented strategies and operational plans to optimize plant productivity and supply chain inventory levels;
 
  •   Re-launched Aktenâ;
 
  •   Strengthened the management team.
Rai further added, “These measures were required to stabilize the Company’s operations. While we continue to look for additional operational efficiencies and cost saving opportunities, we will shift our focus in the second half of 2009 towards increasing the pull-through demand from our hospital clients, increasing direct sales in Ophthalmology and launching three new products: Capastat, Ciprofloxacin and Apraclonidine, as well as implementing new contract manufacturing accounts. With the steps taken in the second quarter and the new business initiatives, we believe the Company can achieve positive cash flow by the end of 2009.”

 

 

Revenue and Gross Profit by Segment
in Thousands (Unaudited)
                         
    THREE MONTH ENDED        
    JUNE 30,        
    2009     2008     Difference  
REVENUE
                        
Ophthalmic
   $ 2,984     $ 4,288       ($1,304 )
Hospital Drugs & Injectables
     3,306       4,851       (1,545 )
Biologics & Vaccines
     7,831       10,002       (2,171 )
Contract Services
     2,179       2,088       91  
 
                  
Total Revenues
   $ 16,300     $ 21,229       ($4,929 )
 
                  
 
                        
GROSS PROFIT
                        
Ophthalmic
     ($458 )   $ 968       ($1,426 )
Hospital Drugs & Injectables
     226       1,328       (1,102 )
Biologics & Vaccines
     1,661       1,786       (125 )
Contract Services
     237       745       (508 )
 
                  
Total Gross Profit
   $ 1,666     $ 4,827       ($3,161 )
 
                  
 
                        
GROSS MARGIN
                        
Ophthalmic
     -15.3 %     22.6 %        
Hospital Drugs & Injectables
     6.8 %     27.4 %        
Biologics & Vaccines
     21.2 %     17.9 %        
Contract Services
     10.9 %     35.7 %        
 
                    
Total Gross Margin
     10.2 %     22.7 %        
About Akorn, Inc.
Akorn, Inc. manufactures and markets sterile specialty pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois and Somerset, New Jersey and markets and distributes an extensive line of hospital and ophthalmic pharmaceuticals. Additional information is available at the Company’s website at www.akorn.com.
This press release includes statements that may constitute “forward-looking statements”, including with regard to the company’s future operations and its earnings expectations. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Factors that could cause or contribute to such differences include, but are not limited to: statements relating to future steps we may take, prospective products, future performance or results of current and anticipated

 

 

products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. These cautionary statements should be considered in connection with any subsequent written or oral forward-looking statements that may be made by the company or by persons acting on its behalf and in conjunction with its periodic SEC filings. You are advised, however, to consult any further disclosures we make on related subjects in our reports filed with the SEC. In particular, you should read the discussion in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in our most recent Annual Report on Form 10-K, as it may be updated in subsequent reports filed with the SEC. That discussion covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results. Other factors besides those listed there could also adversely affect our results.

 

 

AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
                 
    JUNE 30,     DECEMBER 31,  
    2009     2008  
    (UNAUDITED)     (AUDITED)  
ASSETS
                
CURRENT ASSETS
                
Cash and cash equivalents
   $ 1,019     $ 1,063  
Trade accounts receivable (less allowance for doubtful accounts of $18 and $22, respectively)
     9,044       6,529  
Other receivable
     —       1,221  
Inventories
     24,607       30,163  
Prepaid expenses and other current assets
     986       1,770  
 
            
TOTAL CURRENT ASSETS
     35,656       40,746  
PROPERTY, PLANT AND EQUIPMENT, NET
     32,839       34,223  
OTHER LONG-TERM ASSETS
                
Intangibles, net
     5,353       6,017  
Deferred financing costs
     1,391        272  
Other
     1,561       1,071  
 
            
TOTAL OTHER LONG-TERM ASSETS
     8,305       7,360  
 
            
TOTAL ASSETS
   $ 76,800     $ 82,329  
 
            
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
CURRENT LIABILITIES
                
Trade accounts payable
   $ 5,239     $ 8,795  
Accrued compensation
     1,158       1,070  
Accrued expenses and other liabilities
     3,077       2,906  
Short term subordinated debt — related party
     5,742       5,332  
Revolving line of credit — related party
     5,509       —  
Warrants liability
     2,719       —  
Supply agreement termination costs
     4,750       —  
 
            
TOTAL CURRENT LIABILITIES
     28,194       18,103  
LONG-TERM LIABILITIES
                
Lease incentive obligation
     1,394       1,484  
Product warranty liability
     1,299       1,299  
Other long-term liabilities
     825       —  
 
            
TOTAL LONG-TERM LIABILITIES
     3,518       2,783  
TOTAL LIABILITIES
     31,712       20,886  
 
            
SHAREHOLDERS’ EQUITY
                
Common stock, no par value — 150,000,000 shares authorized; 90,244,618 and 90,072,662 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
     171,903       170,617  
Warrants to acquire common stock
     2,731       2,731  
Accumulated deficit
     (129,546 )     (111,905 )
 
            
TOTAL SHAREHOLDERS’ EQUITY
     45,088       61,443  
 
            
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 76,800     $ 82,329  
 
            

 

 

AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
                                 
    THREE MONTHS ENDED     SIX MONTHS ENDED  
    JUNE 30,     JUNE 30,  
    2009     2008     2009     2008  
Revenues
   $ 16,300     $ 21,229     $ 38,340     $ 35,688  
Cost of sales
     14,634       16,402       31,311       27,114  
 
                        
GROSS PROFIT
     1,666       4,827       7,029       8,574  
Selling, general and administrative expenses
     5,833       5,914       12,829       12,171  
Supply agreement termination expenses
     99       —       5,929       —  
Amortization of intangibles
     338       338       914       677  
Research and development expenses
     1,690       1,225       2,668       3,601  
 
                        
TOTAL OPERATING EXPENSES
     7,960       7,477       22,340       16,449  
 
                        
OPERATING LOSS
     (6,294 )     (2,650 )     (15,311 )     (7,875 )
Write-off of deferred financing costs
     (98 )     —       (1,552 )     —  
Interest expense, net
     (376 )     (169 )     (654 )     (284 )
Equity in earnings of unconsolidated joint venture
      128       —        188       —  
Change in warrants liability value
     (310 )     —       (310 )     —  
Other expense
     —       —       —       (201 )
 
                        
LOSS BEFORE INCOME TAXES
     (6,950 )     (2,819 )     (17,639 )     (8,360 )
Income tax provision
     —       —       2       3  
 
                        
NET LOSS
   $ (6,950 )   $ (2,819 )   $ (17,641 )   $ (8,363 )
 
                        
NET LOSS PER SHARE:
                                
BASIC
   $ (0.08 )   $ (0.03 )   $ (0.20 )   $ (0.09 )
 
                        
DILUTED
   $ (0.08 )   $ (0.03 )   $ (0.20 )   $ (0.09 )
 
                        
SHARES USED IN COMPUTING NET LOSS PER SHARE:
                                
BASIC
     90,218       89,204       90,161       89,129  
 
                        
DILUTED
     90,218       89,204       90,161       89,129  
 
                        

 

 

AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
                 
    SIX MONTHS  
    ENDED JUNE 30  
    2009     2008  
OPERATING ACTIVITIES
                
Net loss
   $ (17,641 )   $ (8,363 )
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
     2,848       2,222  
Amortization of deferred financing fees
     1,552       —  
Non-cash stock compensation expense
     1,243       1,249  
Non-cash supply agreement termination expense
     1,051       —  
Non-cash change in warrants liability value
     310       —  
Equity in earnings of unconsolidated joint venture
     (188 )     —  
Changes in operating assets and liabilities:
                
Trade accounts receivable
     (2,515 )     (5,989 )
Inventories
     5,556       5,720  
Prepaid expenses and other current assets
     574       140  
Other long-term assets
     —       1,246  
Supply agreement termination liabilities
     4,750       —  
Trade accounts payable
     (3,556 )     (9,639 )
Other long-term liabilities
      825       —  
Accrued expenses and other liabilities
     579       362  
 
            
NET CASH USED IN OPERATING ACTIVITIES
     (4,612 )     (13,052 )
INVESTING ACTIVITIES
                
Purchases of property, plant and equipment
     (642 )     (1,420 )
Purchase of product licensing rights
     (250 )     —  
 
            
NET CASH USED IN INVESTING ACTIVITIES
     (892 )     (1,420 )
FINANCING ACTIVITIES
                
Repayment of long-term debt
     —       (208 )
Restricted cash for revolving credit agreement
     —       (2,050 )
Loan origination fees — new revolving line of credit
     (1,313 )     —  
Proceeds from line of credit
     5,509       9,658  
Proceeds from exercise of stock warrants
     —       37  
Proceeds under stock option and stock purchase plans
     1,264       456  
 
            
NET CASH PROVIDED BY FINANCING ACTIVITIES
     5,460       7,893  
 
            
DECREASE IN CASH AND CASH EQUIVALENTS
     (44 )     (6,579 )
Cash and cash equivalents at beginning of period
     1,063       7,948  
 
            
CASH AND CASH EQUIVALENTS AT END OF PERIOD
   $ 1,019     $ 1,369  
 
            
SUPPLEMENTAL DISCLOSURES
                
Amount paid for interest
   $ 227     $ 366  
Amount paid for income taxes
   $ 3     $ 3