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Item 1A. Risk Factors

2024-02-29 compared with 2023-03-09 · 234 added, 216 removed, 455 unchanged (50% of the section changed)

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Investing in our common stock involves a high degree of risk.

You should carefully consider all information in this Annual Report on Form 10-K prior to investing in our common stock.

You should carefully consider all information in this Annual Rep ort on Form 10-K prior to investing in our common stock.

These risks are discussed more fully in the section titled “Risk Factors.” These risks and uncertainties include, but are not limited to, the following:

● We may not achieve the anticipated benefits from our acquisition of Novitium Pharma LLC (“Novitium”);

● The obligations and liabilities of Novitium, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Novitium to us;

● The uncertain impact that novel coronavirus (“COVID-19”) will have on our business and results of operations, including the emergence of variants of the virus;

• Cortrophin Gel is our first rare disease pharmaceutical product.

To the extent we are not able to continue to achieve commercial success with this product, including expanding the market and gaining market share, our business, financial condition, and results of operations will be negatively impacted;

• Our approved products, including Cortrophin Gel, may not achieve commercialization at levels of market acceptance that will continue to allow us to achieve profitability;

• Acquisitions and investments could disrupt our business and harm our financial position and operating results;

• The limited number of suppliers for our API could result in lengthy delays in production if we need to change suppliers;

• Several of the products we have acquired cannot be manufactured in our facilities and we must secure and maintain qualified and compliant contract manufacturers.

Noncompliance by these contract manufacturers or our inability to find qualified contract manufacturers could result in us being unable to commercialize these products;

Several of our products are manufactured and/or packaged by third parties, which we cannot control and could result in us being unable to market and distribute products;

• We are subject to United States federal and state laws related to healthcare fraud and abuse and health information privacy and security, and the failure to comply with such laws may adversely affect our business;

• The continuing trend toward consolidation of customer groups that could result in declines in the sales volume and prices of our products, and increased fees charged by customers;

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• Barriers in achieving anticipated revenue growth and profitability could have a material adverse effect on our business, financial position, and operating results;

● Cortrophin Gel is our first rare disease pharmaceutical product.

To the extent we are not able to achieve commercial success with this product, including gaining market share, our business, financial condition, and results of operations will be negatively impacted;

● The limited number of suppliers for our active pharmaceutical ingredients (“API”) could result in lengthy delays in production if we need to change suppliers;

● Several of the products we have acquired cannot be manufactured in our facilities and we must secure and maintain qualified and compliant contract manufacturers.

Noncompliance by these contract manufacturers or our inability to find qualified contract manufacturers could result in us being unable to commercialize these products;

Several of our products are manufactured and/or packaged by third parties, which we cannot control and could result in us being unable to market and distribute products;

• We may not achieve the anticipated benefits from our acquisition of Novitium Pharma LLC (“Novitium”);

• The obligations and liabilities of Novitium, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Novitium to us;

• Public health outbreaks, epidemics, or pandemics (such as COVID-19) have adversely affected and may in the future adversely affect our business;

• The Food and Drug Administration (“FDA”) does not provide guidance on safety labeling for products that are marketed without approved New Drug Applications (“NDAs”) or Abbreviated New Drug Applications (“ANDAs”), which could increase our potential liability with respect to failure-to-warn claims for these products;

• Four of our products are marketed without approved NDAs or ANDAs and we can offer no assurances that the FDA will not require us to either seek approval for these products or withdraw them from the market.

In either case, our business, financial position, and operating results could be materially adversely affected;

• If the Drug Enforcement Administration (“DEA”) does not approve supply of the API we need to manufacture our controlled substances, we may be unable to manufacture controlled substances, which would eliminate our revenue on these products;

● Acquisitions and investments could disrupt our business and harm our financial position and operating results;

• Our Medicaid rebate accruals have increased and continue to increase due to our acquisitions and subsequent sales of branded products and authorized generics of branded products;

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• We face vigorous competition from other pharmaceutical manufacturers that threatens the commercial acceptance and pricing of our products;

● Our approved products, including Cortrophin Gel, may not achieve commercialization at levels of market acceptance that allow us to achieve profitability;

• We expect to spend a significant amount of resources on research and development efforts, and such efforts may not result in marketable products;

● Production at any or all of our four current manufacturing facilities could be interrupted, which could cause us to fail to deliver product on a timely basis;

• Production at any or all of our three current manufacturing facilities could be interrupted, which could cause us to fail to deliver product on a timely basis;

• We rely on third parties to assist with our clinical studies.

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and foreign countries could negatively affect sales of our branded products;

● We have very limited staffing and are dependent upon key employees, the loss of whom could adversely affect our operations;

• With the exception of patents on a limited number of products we do not own or license any material patents associated with the majority of our products, and our ability to protect and control unpatented trade secrets, know-how, and other technological innovation is limited;

• Our success is largely dependent upon certain key employees, including members of our senior management, the loss of whom could adversely affect our operations;

• We rely significantly on information technology and any failure, inadequacy, interruption, or security lapse of that technology could harm our ability to operate the business effectively;

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• Making interest and principal payments under our Credit Agreement with Truist requires a significant amount of cash;

● We identified material weaknesses in our internal control over financial reporting.

If we do not effectively remediate these material weaknesses or if we otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud;

• We previously identified material weaknesses in our internal control over financial reporting, and the failure to maintain an effective system of internal controls and procedures may cause investors to lose confidence in our financial reporting;

• Our Credit Facility contains restrictive and financial covenants and if are not in compliance with these covenants, our outstanding indebtedness under this facility could be accelerated and the lenders could terminate their commitments under the facility;

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Raising additional funds by entering into additional credit or other borrowing facilities or issuing debt may subject us to covenants and other requirements that may restrict our operations;

● Our international operations, including those resulting from our acquisition of Novitium and the global nature of its operations, will subject us to political and economic risks, increase our exposure to potential liability under anti-corruption, trade protection, tax, and other laws and regulations.

• Our operations in an international market subject us to additional regulatory oversight both in the international market and in the U.S., as well as, social, and political uncertainties, which could cause a material adverse effect on our business, financial position, and operating results;

• Our operations, including those resulting from our acquisition of Novitium and its international operations, will subject us to political and economic risks, increase our exposure to potential liability under anti-corruption, trade protection, tax, and other laws and regulations.

The following are significant factors known to us that could materially harm our business, financial position, or operating results or could cause our actual results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report.

The risks described are not the only risks facing us.

Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial,

also may adversely affect our business, financial position, and operating results.

Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial position, and operating results.

If any of these risks actually occur, our business, financial position, and operating results could suffer significantly.

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Risks Related to our Business

We may not achieve the anticipated benefits from our acquisition of Novitium, which could have a material adverse effect on our business, financial position, and operating results.

On November 19, 2021, the Company completed its previously announced acquisition (the “Acquisition”) of Novitium pursuant to the terms of the Agreement and Plan of Merger, dated as of March 8, 2021 (the “Merger Agreement”), by and among the Company, Novitium, Nile Merger Sub LLC, a Delaware limited liability company , and certain other parties, with Novitium becoming a wholly owned subsidiary of ANI.

We may not realize the potential benefits from the Acquisition that we or the market expects.

Risks associated with the Acquisition include:

• failure to effectively manage our expanded operations, which were materially increased by the Acquisition;

• diversion of management’s attention, the disruption or interruption of, or the loss of momentum in, the businesses of ANI and Novitium or inconsistencies in standards, controls, procedures, and policies, any of which could adversely affect our ability to maintain relationships with customers, partners, and employees or our ability to achieve the anticipated benefits of the acquisition ;

• loss of key employees;

• failure to maintain relationships with third parties, including Novitium’s and our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Acquisition.

Any adverse changes in these relationships could adversely affect our business, financial condition, and results of operations.

The obligations and liabilities of Novitium, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Novitium to us.

Novitium’s obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in Novitium’s historical financial statements, may be greater than we have anticipated.

The obligations and liabilities of Novitium could have a material adverse effect on Novitium’s business or Novitium’s value to us or on our business, financial condition, or results of operations.

Under the Merger Agreement relating to the Novitium acquisition, we have only limited indemnification with respect to obligations or liabilities of Novitium, whether known or unknown.

In addition, even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party.

In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer severe consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

Our anticipated revenue growth and profitability, if achieved, is dependent upon our ability to develop, license or acquire, and commercialize new products on a timely basis in relation to our competitors’ product introductions, and to address all regulatory requirements applicable to the development and commercialization of new products.

Our failure to do so successfully could impair our growth strategy and plans and could have a material adverse effect on our business, financial position, and operating results.

Our future revenues and profitability are dependent upon our ability to successfully develop, license or acquire, and commercialize pharmaceutical products in a timely manner.

Product development is inherently risky and time-consuming.

Likewise, product licensing involves inherent risks, including uncertainties due to matters that may affect the achievement of milestones, as well as the possibility of contractual disagreements with regard to the supply of

product meeting specifications and terms such as license scope or termination rights.

The development and commercialization process also requires substantial time, effort, and financial resources.

Additionally, we have entered profit-sharing arrangements with third parties in which we sell products under ANDAs or NDAs owned or licenses by these third parties.

Under these agreements, we pay these third parties a specified percentage of the gross profit earned on sales of the products, and such percentages in certain cases increase as additional gross profit is earned.

Any increases in these percentages would impact our future profitability.

We may not be successful in commercializing products on a timely basis, if at all, which could adversely affect our business, financial position, and operating results.

The FDA must approve any new prescription product before it can be marketed in the U.S.

The process of obtaining regulatory approval to manufacture and market branded and generic pharmaceutical products is rigorous, time consuming, costly, and largely unpredictable.

We may be unable to obtain requisite approvals on a timely basis for branded or generic products that we may develop, license, or acquire.

Moreover, if we obtain regulatory approval for a drug, we may be limited with respect to the indicated uses and delivery methods for which the drug may be marketed, which in turn could restrict the potential market for the drug.

Also, for products pending approval, we may obtain raw materials or produce batches of inventory.

In the event that regulatory approval is denied or delayed, we could be exposed to the risk of any such inventory becoming obsolete.

The timing and cost of obtaining regulatory approvals could adversely affect our product introduction plans, business, financial position, and operating results.

The approval process for generic pharmaceutical products often results in the FDA granting simultaneous final approval to a number of generic pharmaceutical products at the time a patent claim for a corresponding branded product or other market exclusivity expires.

This often forces a generic firm to face immediate competition when it introduces a generic product into the market.

Additionally, further generic approvals often continue to be granted for a given product subsequent to the initial launch of the generic product.

These circumstances generally result in significantly lower prices, as well as reduced margins, for generic products compared to branded products.

New generic market entrants generally cause continued price and margin erosion over the generic product life cycle.

As a result, we could be unable to grow or maintain market share with respect to our generic pharmaceutical products, which could have a material adverse effect on our ability to market that product profitably and on our business, financial position, and operating results.

Furthermore, if we are unable to address all regulatory requirements applicable to the development and commercialization of new products in a timely manner, our product introduction plans, business, financial position, and operating results could be materially adversely affected.

The FDA regulates and monitors all promotion and advertising of prescription drugs after approval.

All promotion must be consistent with the conditions of approval and submitted to the agency.

Failure to adhere to FDA promotional requirements can result in enforcement letters, warning letters, changes to existing promotional material, and corrective notices to healthcare professionals.

Promotion of a prescription drug for uses not approved by the FDA can have serious consequences and result in lawsuits by private parties, state governments and the federal government, significant civil and criminal penalties, and compliance agreements that require a company to change current practices and prevent unlawful activity in the future.

Cortrophin Gel is our first rare disease pharmaceutical product.

To the extent our efforts to commercialize this product are un successful, our business, financial condition and results of operations will be negatively impacted .

To the extent our ongoing and continuing efforts to commercialize this product are unsuccessful, our business, financial condition and results of operations will be negatively impacted.

On October 29, 2021, we received approval from the FDA for our Cortrophin Gel product for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome.

We have devoted significant time and money over the past five years to the development of this product since we acquired the rights to the product in 2016.

We have devoted significant time and money over the past eight years to the development of this product since we acquired the rights to the product in 2016.

We have invested and continue to invest significantly in the commercialization of this product in the U.S, including building out a sales force and developing a patient support program, with a full-scale launch in January 2022.

The ability for us to generate significant net product revenues from Cortrophin Gel will depend upon our ability to successfully sell the product and numerous other factors, including:

In October 2023, we announced FDA approval and commercial availability of a 1-mLvial of Cortrophin Gel, appropriate for adjunctive treatment of certain patients with acute gouty arthritis flares.

The ability for us to generate significant net product revenues from our Cortrophin Gel products will depend upon our ability to successfully sell the product and numerous other factors, including:

• successfully establishing and maintaining effective sales, marketing, and distribution systems in jurisdictions in which Cortrophin Gel is approved for sale;

● successfully establishing and maintaining manufacturing capabilities and manufacturing adequate commercial quantities of Cortrophin Gel at acceptable cost and quality levels, including maintaining current good manufacturing practice (“cGMP”) and quality systems regulation standards required by various regulatory agencies;

• successfully establishing and maintaining manufacturing capabilities with our third-party suppliers and CMOs and manufacturing adequate commercial quantities of Cortrophin Gel at acceptable cost and quality levels, including maintaining current good manufacturing practice (“cGMP”) and quality systems regulation standards required by various regulatory agencies;

• broad acceptance of Cortrophin Gel by physicians, patients, and gaining market access share in the healthcare community;

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In addition, sales of Cortrophin Gel could be negatively affected by discovery of previously unknown problems with the product, such as adverse events of unanticipated severity or frequency, problems with the facilities where the product is manufactured, or imposition of restrictions on Cortrophin Gel, including requiring withdrawal of the product from the market, by a regulatory agency if it disagrees with the promotion, marketing, or labeling of the product.

We are continuing to develop our marketing and sales organization to support Cortrophin Gel and have no experience in marketing prescription rare disease drug products.

If we are unable to successfully establish marketing and sales capabilities for Cortrophin Gel , our business will suffer .

We have only recently established rare disease sales, marketing or distribution capabilities and have no institutional experience in marketing rare disease products.

We are continuing to develop our marketing and sales organization to support Cortrophin Gel and have limited experience in marketing prescription rare disease drug products.

If we are unable to continue to develop marketing and sales capabilities for Cortrophin Gel, our business will suffer.

We first established our rare disease sales, marketing or distribution capabilities in 2021 and have limited institutional experience in marketing rare disease products.

We intend to continue to develop an in-house marketing organization and sales force, which will require significant expenditures, management resources and time.

We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

Future acquisitions and investments could disrupt our business and harm our financial position and operating results.

Our growth will depend, in part, on our continued ability to develop, commercialize, and expand our products, including in response to changing regulatory and competitive pressures.

In some circumstances, we have and may continue to grow our business through the acquisition of complementary businesses and technologies rather than through internal development.

The identification of suitable acquisition candidates or products can be difficult, time-consuming, and costly, and we may not be able to successfully complete or successfully execute strategies for identified acquisitions.

The risks faced in connection with acquisitions include:

• diversion of management time and focus from operating our business to addressing acquisition and/or product integration challenges;

• coordination of research and development and sales and marketing functions;

• retention of key employees from the acquired company;

• integration of the acquired company’s accounting information, management, human resources, and other administrative systems;

• the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;

• difficulties relating to integrating the acquired business;

• liability for activities of the acquired company and/or products before the acquisition, including patent infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;

• unanticipated write-offs or charges;

• litigation or other claims in connection with the acquired company or product, including claims from product users, former stockholders, or other third parties.

In any acquisition that we may undertake, our failure to address these risks or other problems encountered in connection with any acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally.

We depend on a limited number of suppliers for API.

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Our ability to manufacture and distribute products is dependent, in part, upon ingredients and components supplied by others, including entities based outside the U.S.

During the year ended December 31, 2022, we purchased approximately 19% of our inventory from one supplier.

During the year ended December 31, 2023, no single vendor represented at least 10% of inventory purchases.

During the year ended December 31, 2022, we purchased approximately 19% of our inventory from one supplier.

During the year ended December 31, 2021, no single vendor represented at least 10% of inventory purchases.

Any disruption in the supply of these ingredients or components or any problems in their quality could materially affect our ability to manufacture and distribute our products and could result in legal liabilities that could materially affect our ability to realize profits or otherwise harm our business, financial, and operating results.

Virtually all of our generic contracts for the supply of pharmaceutical products to customers contain "failure to supply"

Virtually all of our generic contracts for the supply of pharmaceutical products to customers contain "failure to supply" clauses.

Under these clauses, if we are unable to supply the requested quantity of product within a certain period after receipt of a customer’s purchase order, the customer is entitled to procure a substitute product elsewhere and we must reimburse the customer for the difference between our contract price and the price the customer was forced to pay to procure the substitute product.

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Any change in one of our API suppliers must usually be approved through a Prior Approval Supplement (“PAS”) by the FDA.

The process of obtaining an approval of such a

PAS can require between four and 18 months.

The process of obtaining an approval of such a PAS can require between four and 18 months.

While we also generally qualify a single source for non-API raw materials, the process required to qualify an alternative source of a non-API raw material is typically much less rigorous.

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From time to time, we have experienced temporary disruptions in the supply of certain of such imported API due to FDA inspections.

In addition, the COVID-19 pandemic and associated workforce factors has disrupted certain supply chains and generally led to longer lead times for the procurement of goods that are essential to the manufacture of our products.

Several of the products we have acquired cannot be manufactured in our facilities and are manufactured and/or packaged by third parties, which we cannot control.

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Any delays or difficulties with third-party manufacturers could adversely affect the marketing and distribution of these products, or future products, which could have a material adverse effect on our business, financial position, and operating results.

We are subject to United States federal and state laws related to healthcare fraud and abuse and health information privacy and security, and the failure to comply with such laws may adversely affect our business.

Many of our products are eligible for reimbursement under federal and state health care programs such as Medicaid, Medicare, TRICARE, and/or state pharmaceutical assistance programs, and as a result, certain U.S.

federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are, and will be, applicable to our business.

We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business.

The domestic and foreign laws that may affect our ability to operate include, but are not limited to:

Anti-Kickback Statute, which applies to our marketing and research practices, educational programs, pricing policies and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, as a means of inducing, or in exchange for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid or other federal healthcare program payers that are false or fraudulent;

(iii) new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

(iv) the U.S.

Physician Payments Sunshine Act, which among other things, requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually information related to certain “payments or other transfers of value” made to physicians, physician assistants, advanced practice nurses and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members, and similar state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;

(v) the government pricing rules applicable to the Medicare and Medicaid programs, the 340B Drug Pricing Program, the U.S.

Department of Veterans Affairs program, the TRICARE program, and state price transparency reporting laws;

and (vi) state and foreign law equivalents of each of the above U.S.

laws, such as anti-kickback and false claims laws which may apply to items or services.

Defense of litigation claims and government investigations can be costly, time-consuming, and distract management, and it is possible that we could incur judgments, settlements, deferred or non-prosecution agreements, or corporate integrity agreements that would require us to change the way we operate our business.

We are committed to conducting the sales and marketing of our products in compliance with the healthcare fraud and abuse laws, but certain applicable laws may impose liability even in the absence of specific intent to defraud.

Furthermore, should there be ambiguity, a governmental authority may take a position contrary to a position we have taken, or should an employee violate these laws without our knowledge, a governmental authority may impose civil and/or criminal sanctions.

Any adverse outcome in these types of actions, or the imposition of penalties or sanctions for failing to comply with fraud and abuse laws, could adversely affect us and may have a material adverse effect on our business, results of operations, financial condition and cash flows.

Some of the statutes and regulations that govern our activities, such as federal and state anti-kickback and false claims laws, are broad in scope, and while exemptions and safe harbors protecting certain common activities exist, they are often narrowly drawn and construed by the courts.

While we manage our business activities to comply with these statutory provisions, due to their breadth, complexity and, in certain cases, uncertainty of application, it is possible that our activities could be subject to challenge by various government agencies.

In particular, the FDA, the DOJ, the Office of Inspector General at the U.S.

Department of Health and Human Services, and other agencies have increased their enforcement activities with respect to the manufacturing, sales, marketing, research and similar activities of pharmaceutical companies in recent years, and many pharmaceutical companies have been subject to government investigations related to these practices.

A determination that we are in violation of these and/or other government regulations and legal requirements may result in civil damages and penalties, criminal fines and prosecution, administrative remedies, the recall of products, the total or partial suspension of manufacturing and/or distribution activities, seizure of products, injunctions, whistleblower lawsuits, failure to obtain approval of pending product applications, withdrawal of existing product approvals, exclusion from participation in government healthcare programs and other sanctions.

Any of these types of investigations or enforcement actions could affect our ability to commercially distribute our products and could materially and adversely affect our business, financial condition, results of operations and cash flows.

We are subject to certain privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies, contractual obligations and failure to comply with such requirements, as well as any breach of unsecured identifiable personal information protected by law, could subject us to significant costs, fines, penalties (civil and criminal), and civil litigation which may have a material adverse effect on our business, financial condition or results of operations.

As regulatory focus on privacy issues continues to increase, and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify.

In addition, the interpretation and application of consumer, health-related, and data protection laws are often uncertain, contradictory, and in flux, which complicates compliance efforts.

Our failure to do so successfully could impair our growth strategy and plans and could have a material adverse effect on our business, financial position, and operating results.

Our future revenues and profitability are dependent upon our ability to successfully develop, license or acquire, and commercialize pharmaceutical products in a timely manner.

Product development is inherently risky and time-consuming.

The development and commercialization process also requires substantial time, effort, and financial resources.

Additionally, we have entered profit-sharing or royalty arrangements with third parties in which we sell products under ANDAs or NDAs owned or licensed by these third parties.