ANI PHARMACEUTICALS INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Please read the following discussion in conjunction with Item 1A. (“Risk Factors”) and our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Some of the statements in the following discussion are forward-looking statements. See the discussion about forward-looking statements on page 1 of this Annual Report on Form 10-K. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31 , 2022 , filed with the SEC on March 9 , 2023 . Executive Overview ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by scaling up our Rare Disease business through the successful launch of our lead asset, Cortrophin Gel, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities. We own and operate three pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, and one is located in East Windsor, New Jersey, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. We ceased operations at our subsidiary in Oakville, Ontario, Canada as of March 31, 2023. This action was part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021. We have fully completed the transition of the products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. On November 6, 2023, ANI Pharmaceuticals Canada Inc., a wholly owned subsidiary of the Company, entered into an agreement with a potential buyer for the sale of the Oakville, Ontario manufacturing facility, however, the agreement was subsequently terminated in December 2023 by mutual agreement. In February 2024, the Company entered into an agreement for the purchase and sale of the Oakville site, for a purchase price of 19.2 million Canadian Dollars, or approximately $ 14.2 million US Dollars, based on the current exchange rate. The sale is expected to close in March 2024 ( see Note 19. Subsequent Events, in the notes to the consolidated financial statements in Part II, Item 8 of this Annual Re port on Form 10-K). Strategy Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors. Our growth strategy is driven by the following key growth drivers: Building a successful Rare Disease platform We have spent significant time, effort and resources in establishing our Rare Disease platform. We acquired the NDAs for Cortrophin Gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin API, a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin Gel fill/finish contract manufacturer. During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA. On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin Gel (Repository Corticotropin Injection USP) 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. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin. 45 Table of Contents During 2021 and 2022, we invested significantly in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. During this timeframe, we hired a significant number of new employees and assembled and trained our Rare Disease field force. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S as our foundational Rare Disease asset. On October 2, 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. As a result of the build out of our Rare Disease team, our expenditures in support of these efforts were significantly higher in 2022 as compared to the prior year, and we continued to invest behind Cortrophin Gel and our Rare Disease platform in 2023. We plan to continue to expand our rare disease business, through a combination of organic growth, as described above, and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to expand our existing capabilities. Strengthening our Generics, Established Brands, and Other segment through continued investment in our generic research and development capability and increased focus on niche opportunities We have grown our generics business through a combination of market share gains on existing products and new product launches. We have also successfully acquired numerous ANDAs through business and asset acquisitions. Our most recent business acquisition was Novitium, including its portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce. The Novitium acquisition significantly increased our generic pharmaceutical research and development and manufacturing capabiliti es. We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and competitive generic therapy ("CGT") designation filings. Additionally, we will continue to seek opportunities to enhance our capab ilities through strategic partnerships and acquisitions of assets and businesses. During 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were co mmercial at the time of acquisition. During the second quarter of 2023, we acquired two ANDAs and one pipeline product from the Chapter 7 Trustee for the estates of Akorn Holding Company and certain of its affiliates. During the third quarter of 2023, we acquired an ANDA and registered patents and pending patent applications from Slayback Pharma Limited Liability Company. During the fourth quarter of 2023, we acquired additional ANDAs and product rights for two products. We have grown our established brand product offerings through acquisition. We have acquired the NDAs for and market Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, Oxistat, Veregen, and Pandel. We are innovating in our go-to-market strategy through creative partnerships. Our overall strategy is enabled by an empowered, collaborative, and purposeful team with a high performance-orientation. 46 Table of Contents Generic Product Development Considerations We consider a variety of criteria in determining which products to develop: These criteria include: • Formulation Complexity . Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are differentiated and include high potency, modified release, combination, and hormonal products. This ability to manufacture a variety of differentiated products is a competitive strength that we intend to leverage in selecting products to develop and commercialize. • Market Size and Patient Need . When determining whether to develop or acquire an individual product, we review the current and expected market size for that product. and competitive environment. We endeavor to pursue products with sufficient market size to enable us to enter the market with a strong likelihood of serving patients in need and thus being able to price our products both competitively and at a profit. • Profit Potential. In determining the potential profit of a product, we forecast our anticipated market share, pricing, competitive environment and the estimated cost to manufacture the products. • Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants to ensure quality control of our products, supply chain reliability and to more closely control the economic inputs and outputs of our products. • Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies typically compete. Fiscal 2023 Developments Election of Directors On August 21, 2023, the Board of Directors of ANI (the “Board”), appointed Matthew Leonard to serve on the Board as a director with a term expiring at the Company’s 2024 annual meeting of stockholders. Mr. Leonard serves as a member of the Audit and Finance Committee and member of the Nominating and Corporate Governance Committee. On August 22, 2023, Dr. David B. Nash, M.D. informed the Board of his decision not to seek reelection as a director on the Board at the Company’s 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”). Dr. Nash will continue to serve for the remainder of his term as a director until the 2024 Annual Meeting. Dr. Nash has served as a member of the Company’s Board since May 2018 and has served as Chair of the Nominating and Corporate Governance Committee and as a Member of the Audit and Finance Committee. Public Offering In May 2023, t hrough a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million. The proceeds are being used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes. Restructuring Update We ceased operations at our subsidiary in Oakville, Ontario, Canada as of March 31, 2023. This action was part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021. We have fully completed the transition of the products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites. On November 6, 2023, ANI Pharmaceuticals Canada Inc., a wholly owned subsidiary of the Company, entered into an agreement with a potential buyer for the sale of the Oakville, Ontario manufacturing facility, however, the agreement was subsequently terminated in December 2023 by mutual agreement. In February 2024, the Company entered into an agreement for the purchase and sale of the Oakville site, for a purchase price of 19.2 million Canadian Dollars, or approximately $14.2 million US Dollars, based on the current exchange rate. The sale is expected to close in March 2024 ( see Note 19. Subsequent Events, in the notes to the consolidated financial statements in Part II, Item 8 of this Annual Re port on Form 10-K). 47 Table of Contents Products Launches Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments. General Impacts to our 2023 and 2022 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below. The following table summarizes our results of operations for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Net Revenues $ 486,816 $ 316,385 Operating Expenses Cost of sales (excluding depreciation and amortization) 181,513 138,785 Research and development 34,286 22,318 Selling, general, and administrative 161,697 124,044 Depreciation and amortization 59,791 56,972 Contingent consideration fair value adjustment 1,426 3,758 Restructuring activities 1,132 5,679 Intangible asset impairment charge — 112 Operating Income (Loss) 46,971 (35,283) Interest expense, net (26,940) (28,052) Other (expense) income, net (159) 670 Income (Loss) Before Expense (Benefit) for Income Taxes 19,872 (62,665) Income tax expense (benefit) 1,093 (14,769) Net Income (Loss) $ 18,779 $ (47,896) 48 Table of Contents The following table sets forth, for the periods indicated, items in our consolidated statements of operations as a percentage of net revenues. Year Ended December 31, 2023 2022 Net Revenues 100.0 % 100.0 % Operating Expenses Cost of sales (excluding depreciation and amortization) 37.3 % 43.9 % Research and development 7.0 % 7.1 % Selling, general, and administrative 33.2 % 39.2 % Depreciation and amortization 12.3 % 18.0 % Contingent consideration fair value adjustment 0.3 % 1.2 % Restructuring activities 0.2 % 1.8 % Intangible asset impairment charge — % 0.0% Operating Income (Loss) 9.6 % (11.2) % Interest expense, net (5.5) % (8.9) % Other (expense) income, net 0.0% 0.2 % Income (Loss) Before Expense (Benefit) for Income Taxes 4.1 % (19.9) % Income tax expense (benefit) 0.2 % (4.7) % Net Income (Loss) 3.9 % (15.2) % Results of Operations for the Years Ended December 31, 2023 and 2022 Net Revenues Year Ended December 31, (in thousands) 2023 2022 Change % Change Generics, Established Brands, and Other Segment Generic pharmaceutical products $ 269,449 $ 210,121 $ 59,328 28.2 % Established brand pharmaceutical products, royalties, and other pharmaceutical services 105,250 64,578 40,672 63.0 % Generics, established brands, and other segment total net revenues $ 374,699 $ 274,699 $ 100,000 36.4 % Rare Disease Segment Rare disease pharmaceutical products 112,117 41,686 $ 70,431 169.0 % Total net revenues $ 486,816 $ 316,385 $ 170,431 53.9 % We derive substantially all of our revenues from sales of generic, rare disease, and established brand pharmaceutical products, royalties on net sales of certain products, and other pharmaceutical services. Many of our established brand products as well as our generic products face competition from generic products and we expect them to continue to face competition from generic products in the future. The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability. Increased competition generally results in decreased average selling prices of generic and brand products over time. In addition, due to strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains. 49 Table of Contents Net revenues for the year ended December 31, 2023 were $486.8 million compared to $316.4 million for the same period in 2022, an increase of $170.4 million, or 53.9%, primarily as a result of the following factors: • Net revenues for generic pharmaceutical products were $269.4 million during the year ended December 31, 2023, an increase of 28.2% compared to $210.1 million for the same period in 2022, driven by increased volumes on the base business, increased volumes from the inclusion of 2022 launches in 2023 and 2023 new product launches. From a product perspective, the increase was principally driven by revenues from year over year increases in products such as Acebutolol, Colestipol, Digoxin, Famotidine, Fluoxetine, Levocarnitine, Mixed Amphetamine Salts Extended Release, Misoprostol, Nitrofurantoin, Pyrazinamide, Thyroid, Tolterodine, Tranexamic Acid, Trimethorpim, and various other products tempered by a decrease in revenues of Cholestyramine, Fenofibrate, Mesalamine, Nicardipine, Oxybutynin Chloride, Paliperidone Extended Release, and Prazosin, among others. • Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $105.3 million during the year ended December 31, 2023, an increase of 63.0% compared to $64.6 million for the same period in 2022, driven by a net increase in volume. • Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $112.1 million during the year ended December 31, 2023 , which represents an increase of $70.4 million from $41.7 million for the sam e period in 2022 . This increase was driven by increased volume in this second year of launch (product was launched in late January 2022). In addition to the above, within our Generic, established brand, and other segment in the current year period, we were successful in supplying incremental volume in markets that were experiencing supply chain disruptions for competing products. Generally, when opportunities for volume and revenue upside related to our products arise in the marketplace, there is no assurance as to how long these favorable market conditions may persist. Cost of Sales (Excluding Depreciation and Amortization) Year Ended December 31, (in thousands) 2023 2022 Change % Change Cost of sales (excluding depreciation and amortization) 181,513 138,785 $ 42,728 30.8 % Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging components, and royalties payable related to profit-sharing arrangements. Cost of sales does not include depreciation and amortization expense, which is reported as a separate component of operating expenses on our consolidated statements of operations. For the year ended December 31, 2023, cost of sales increased to $181.5 million from $138.8 million for the same period in 2022, an increase of $42.7 million or 30.8%. The increase is primarily due to a significant increase in sales volumes of generic and rare disease pharmaceutical products and a net increase in sales of products that bear a royalty payable, including Purified Cortrophin Gel. During the year ended December 31, 2022 , we recognized $5.3 million in cost of sales representing the excess of fair value over cost for inventory acquired in acquisitions and subsequently sold during the year ended December 31, 2022 . There are no comparable expenses in the year ended December 31, 2023 . Cost of sales, as a percentage of net revenues, decreased from 42.2% to 37.3% for the year ended December 31, 2023 , compared to the same period in 2022 . The decrease was primarily due to the non-recurrence of $5.3 million expense recognized in the year ended December 31, 2022 , related to the excess of fair value over cost for inventory acquired in a business combination, as well as the increased sales of Established brand pharmaceutical products, royalties, and other pharmaceutical services products and Cortrophin Gel coupled with increased generic volumes with a mix shift in higher margin products. 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 purc hased 19% of our inventory from one supplier. 50 Table of Contents Other Operating Expenses Year Ended December 31, (in thousands) 2023 2022 Change % Change Research and development $ 34,286 $ 22,318 $ 11,968 53.6 % Selling, general, and administrative 161,697 124,044 37,653 30.4 % Depreciation and amortization 59,791 56,972 2,819 4.9 % Contingent consideration fair value adjustment 1,426 3,758 (2,332) (62.1) % Restructuring activities 1,132 5,679 (4,547) (80.1) % Intangible asset impairment charge — 112 (112) (100.0) % Total other operating expenses $ 258,332 $ 212,883 $ 45,449 21.3 % For the year ended December 31, 2023, other operating expenses increased to $258.3 million from $212.9 million for the same period in 2022, an increase of $45.4 million, or 21.3%, primarily as a result of the following factors: • Research and development expenses increased from $22.3 million to $34.3 million, an increase of 53.6%, primarily due to expenses related to a 505(b)(2) filing for one product of approximately $1.6 million, expenses related to ANDA filings, and a higher level of activity associated with ongoing and new projects in the year ended December 31, 2023. • Selling, general, and administrative expenses increased from $124.0 million to $161.7 million, an increase of 30.4%, due to increased employment related costs, Rare Disease sales and marketing costs, legal expenses, as well as an overall increase in activities required to support the growth of our business. • Depreciation and amortization expense was $59.8 million for the year ended December 31, 2023, compared to $57.0 million for the same period in 2022, an increase of $2.8 million. The increase is primarily due to an increase in amortization expense related to intangible assets acquired during 2023, and amortization of IPR&D which commenced during the year ended December 31, 2023. • We recognized a loss of $1.4 million and loss of $3.8 million in the year ended December 31, 2023 and 2022, respectively, for the contingent consideration fair value adjustment. The change in the fair value adjustment is primarily related to changes in the anticipated cash flows, specifically extending the timeframe over which cash flows will be generated by the products, offset by the passage of time (i.e., moving closer to the anticipated payment date of the consideration), an increase to the probability of payment for the product development-based milestone payments, and by fluctuations in the discount rates utilized throughout the year. • We recognized restructuring activities of $1.1 million of expense in the year ended December 31, 2023, in relation to the closure of our Oakville, Ontario, Canada facility. Costs included severance and other employee benefits costs of $0.2 million, and $0.7 million of accelerated depreciation costs. We recognized restructuring activities of $5.7 million of expense in the year ended December 31, 2022, in relation to the closure of our Oakville, Ontario, Canada facility. Costs included $2.1 million in termination benefits, $3.1 million in fixed asset impairments and accelerated depreciation, and $0.4 million of other costs. • We recognized an impairment charge of $0.1 million in the year ended December 31, 2022, in relation to an ANDA asset. No impairm ent charges were recognized in the year ended December 31, 2023. Other Expense, net Year Ended December 31, (in thousands) 2023 2022 Change % Change Interest expense, net (26,940) (28,052) $ 1,112 (4.0) % Other (expense) income, net (159) 670 (829) (123.7) % Total other expense, net $ (27,099) $ (27,382) $ 283 (1.0) % 51 Table of Contents For the year ended December 31, 2023, we recognized total other expense, net of $27.1 million versus total other expense of $27.4 million for the same period in 2022, a decrease of $0.3 million. Interest expense, net for the year ended December 31, 2023 and 2022 consisted primarily of interest expense on borrowings under our Term Facility, amortization of deferred debt issuance costs, dividend income earned on our money market funds, the effects of the interest rate swap, and interest earned on cash balances. The decrease in interest expense is due to dividend income earned on our money market funds, income from our interest rate swap, and increased interest income earned on higher cash balances, offset by an increased borrowing rate on the Term Facility and an increase in amortization of finance fees. For the year ended December 31, 2023, there was $0.6 million of interest capitalized into construction in progress, compared to less than $0.1 million of interest capitalized for the year ended December 31, 2022, representing an offset to interest expense. Income Tax Expense (Benefit) Year Ended December 31, (in thousands) 2023 2022 Change % Change Income tax expense (benefit) $ 1,093 $ (14,769) $ 15,862 (107.4) % Incom e tax expense (benef it) consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance. See Note 14. Income Taxes, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for further information. For the year ended December 31, 2023, we recognized an income tax expense of approximately $1.1 million. The Company's effective tax rate was 5.5% after discrete items for the year ended December 31, 2023. The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S. federal research and development credit, permanent differences, and stock based compensation. For the year ended December 31, 2022, we recognized an income tax benefit of $(14.8) million, an effective benefit rate of 23.6% of consolidated pre-tax losses reported in the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur. There were no material discrete items occurring during the year ended December 31, 2022. 52 Table of Contents Liquidity and Capital Resources The following table highlights selected liquidity and working capital information from our consolidated balance sheets. (in thousands) December 31, 2023 December 31, 2022 Cash and cash equivalents $ 221,121 $ 48,228 Current restricted cash — 5,006 Accounts receivable, net 162,079 165,438 Inventories 111,196 105,355 Prepaid income taxes — 3,827 Assets held for sale 8,020 8,020 Prepaid expenses and other current assets 17,400 8,387 Total current assets $ 519,816 $ 344,261 Current debt, net of deferred financing costs $ 850 $ 850 Accounts payable 36,683 29,305 Accrued royalties 16,276 9,307 Accrued compensation and related expenses 23,786 10,312 Accrued government rebates 12,168 10,872 Income taxes payable 8,164 — Returned goods reserve 29,678 33,399 Current contingent consideration 12,266 — Accrued expenses and other 5,606 5,394 Total current liabilities $ 145,477 $ 99,439 As of December 31, 2023, we had $221.1 million in unrestricted cash and cash equivalents. On December 31, 2022, we had $48.2 million in unrestricted cash and cash equivalents. In 2023 and 2022, we invested in leadership, expertise, and infrastructure in the areas of commercialization of rare disease therapies, and in 2022 began to commercialize our Cortrophin Gel product. We are focused on expanding our business and product pipeline through collaborations, and also through acquisitions of products and companies. We are continually evaluating potential asset acquisitions and business combinations. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both. Our working capital ratio, defined as total current assets divided by total current liabilities, is 3.6 as of December 31, 2023 . We believe that our financial resources, consisting of net current working capital of approximately $374.3 million, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of December 31, 2023, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months. If our assumptions underlying estimated revenue and expenses are wrong, or if our cash requirements change materially as a result of shifts in our business or strategy, we could require additional financing. If we are not able to continue to be profitable in future years or are not able to continue to generate cash from operations as anticipated and additional capital is needed to support operations, we may be unable to obtain such financing, or obtain it on favorable terms, in which case we may be required to curtail development of new products, limit expansion of operations, or accept financing terms that are not as attractive as desired. Consolidation among wholesale distributors, chain drug stores, and group purchasing organizations has resulted in a smaller number of companies each controlling a larger share of pharmaceutical distribution channels. Our net revenues were concentrated among four customers representing 31%, 13%, 13%, and 12% of net revenues during the year ended December 31, 2023. As of December 31, 2023 accounts receivable from these four customers totaled approximately 81% of accounts receivable, net. Our net revenues were concentrated among three customers representing 26%, 18%, and 15% of net revenues during the year ended December 31, 2022. As a result, negotiated payment terms with these customers have a material impact on our liquidity and working capital. 53 Table of Contents Our Cortrophin Gel product accounted for approximately 23% and 13% of our net revenues in 2023 and 2022, respectively. We pay to Merck Sharpe & Dohme B.V. ("Merck") quarterly contingent consideration in the form of a perpetual, tiered royalty expressed as a percentage of Cortrophin Gel net sales. During the initial two years of commercialization (2022 and 2023) this royalty approximated 10% of net sales. We currently anticipate the blended Merck royalty rate to be in the upper teens in 2024. In the case of significant revenue growth beyond 2024, we anticipate the blended rate may reach the low 20 percent range. Sources and Uses of Cash Debt Financing On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). The Term Facility proceeds were used to finance the cash portion of the consideration under the Merger Agreement, repay the existing credit facility, and pay fees, costs and expenses incurred in connection with the merger. The Term Facility matures in November 2027 and the Revolving Facility in November 2026. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Credit Facility permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the SOFR Rate (or alternate benchmark rate as defined in the Credit Agreement) in the case of SOFR loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the SOFR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility. Amendment No. 1 also includes the addition of a credit spread adjustment of 0.11448% for an interest period of one-month duration, 0.26161% for a three-month duration, and 0.42826% for a six-month duration, in addition to SOFR and the applicable margin, as noted above. There were no other changes or modifications to the Credit Agreement. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the 12 months ending December 31, 2024. As of December 31, 2023 , $3.0 million of principal of the loan was recorded as current borrowings, net of deferred financing costs, in the consolidated balance sheet. As of December 31, 2023 , we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing subject to certain conditions. Equity Financing In May 2023, through a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million. Th e proceeds are intended to be used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes. Uses of Cash Our primary cash requirements are to fund operations, including Purified Cortrophin Gel commercialization efforts, research and development programs and collaborations, to support general and administrative activities, to purchase equipment and machinery to expand our manufacturing capabilities as our product lines grow, and to expand our business and product pipeline through acquisitions of products and companies. We are continually evaluating potential asset acquisitions and business combinations. Our future capital requirements will depend on many factors, including, but not limited to: • product mix and pricing for product sales and contract manufacturing; • pricing and payment terms with customers; • costs of raw materials and payment terms with suppliers; 54 Table of Contents • capital expenditures and equipment purchases to support product launches; and • business and product acquisitions. On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 8, 2021, for cash consideration, 2,466,654 restricted shares of our common stock valued at $91.2 million based on our closing stock price of $43.54 on the date of closing and discounted for lack of marketability due to restrictions on shares, and up to $46.5 million in additional contingent consideration. Additionally, we agreed to pay certain debts of Novitium in the amount of $8.5 million, which we deemed to be paid in consummation of the transaction closing, and not assumed liabilities, and thus were included as additional cash consideration. This acquisition was accounted for as a business combination. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. As of the closing of the acquisition, the contingent consideration had a fair value of $30.8 million. Refer to Note 10 for changes in contingent consideration and changes in fair value. Total consideration including cash, restricted shares and contingent consideration was valued at $206.5 million. In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. In connection with the termination of the Prior Credit Agreement, on November 19, 2021, we used borrowings under the Credit Facility to prepay the full amount of indebtedness under the Prior Credit Agreement, and to pay related accrued and unpaid interest, legal fees, and expenses. We made a reacquisition payment of $200.1 million, representing the remaining principal balance on the debt of $200.1 million plus certain legal fees. Discussion of Cash Flows The following table summarizes the net cash and cash equivalents provided by (used in) operating activities, investing activities, and financing activities for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Operating Activities $ 118,959 $ (31,203) Investing Activities $ (18,511) $ (15,738) Financing Activities $ 67,439 $ (5,126) Net Cash Provided by (Used in) Operations Net cash provided by operating activities was $119.0 million for the year ended December 31, 2023, compared to $31.2 million used in operating activities during the same period in 2022, a change of $150.2 million. The increase was driven by net income in the current year period due to increased sales and gross profit and the non-recurrence of significant utilization of cash during the initial launch period of Cortrophin Gel in 2022, as well as other net changes in our assets and liabilities. Net Cash Used in Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $18.5 million, principally due to $8.9 million of capital expenditures and consideration paid for asset acquisitions of ANDAs and other product rights from Akorn Holding Company, Slayback Pharma Limited Liability Company, and Alvogen, Inc. totaling $9.6 million. Net cash used in investing activities for the year ended December 31, 2022 was $15.7 million, principally due to $8.9 million of capital expenditures and the consideration paid for asset acquisitions of intangible assets totaling $7.6 million, partially offset by $0.8 million of proceeds from the sale of long-lived assets during the period. Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities was $67.4 million for the year ended December 31, 2023, principally due to $80.6 million in net proceeds from the May 2023 public offering and $9.0 million from proceeds from stock option exercises and ESPP purchases. This is offset by cash used in financing activities related to $12.5 million to Company Members of Novitium, $3.0 million maturity payments on the Term Facility, $5.0 million of treasury stock purchased in 55 Table of Contents relation to restricted stock vests, and $1.6 million convertible preferred stock dividends paid. Net cash used in financing activities for the year ended December 31, 2022 was $5.1 million, principally due to the $3.0 million maturity payments on the Term Facility, $2.0 million of treasury stock purchased in relation to restricted stock vests, and $1.6 million convertible preferred stock dividends paid. Contractual Obligations We believe our available cash and cash equivalents along with our ability to generate operating cash flow and continued access to debt markets are sufficient to fund existing and planned cash requirements. Our contractual obligations and commitments as of December 31, 2023 are comprised of principal payments on debt, interest payments on debt, operating leases, purchase obligations, dividends, and contingent consideration. Our largest contractual obligation relates to our principal payments on our interest payments on our debt. As of December 31, 2023 , the principal amount of our Term Facility was $294.0 million. The interest rate on our Term Facility is currently 1-month SOFR plus 6.00% per annum, plus a credit spread adjustment of 0.11448% for an interest period of one-month duration, subject to a 0.75% floor. The interest rate under the Term Facility as of December 31, 2023 is 11.46% . See Note 5, Indebtedness, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information and timing on our principal payments on debt. We also have an interest rate swap used to manage changes in SOFR-based interest rates underlying a portion of the borrowing under the Term Facility. Under the swap agreement, ANI pays the counterparty a fixed rate of 2.26% and receives variable 1-month SOFR, subject to a 0.75% floor, on the outstanding notional value. As of December 31, 2023 , the notional value of the interest rate swap was $139.4 million . See Note 6, Derivative Financial Instruments and Hedging Activity, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information. Our operating leases are for facilities and office equipment. As leases expire, we do not anticipate difficulty in negotiating renewals or finding other satisfactory space if the premise becomes unavailable. See Note 15, Co mmitments and Contingencies, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional discussion and timing of payments related to these operating lease obligations. Our convertible preferred stock (“PIPE Shares”) accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind. Dividends are payable until the preferred stock is converted, either at the option of the PIPE investor, at any time, or the option of ANI, beginning two years after the November 19, 2021 issuance provided ANI’s stock price reaches a certain lev el. See Note 11, Mezz anine and Stockholders’ Equity, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional discussion of dividends. Consideration of the Novitium acquisition included $46.5 million in contingent future earn-out payments. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. Pursuant to the terms of the Agreement and Plan of Merger, dated as of March 8, 2021, on December 12, 2023, the Company paid $12.5 million of cash consideration to the Company Members, defined as the holders of Novitium ownership interests in the Agreement and Plan of Merger, of Novitium for the achievement of the "ANDA Filing Earn-Out," as defined in the Agreement. On February 22, 2024, the Company paid $12.5 million to Novitium related to the achievement of the milestone, see Note 2 and Note 10, Business Combination and Fair Value, respectively, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information on our contingent consideration. We expect to continue to incur significant expenditures in support of our commercial launch of Cortrophin, including costs related to service contracts and increased headcount. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Our significant accounting policies are discussed in Note 1, "Description of Business and Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements in Part II, Item 8. of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily 56 Table of Contents apparent from other sources. Actual results could differ from those estimates. Due to the estimation processes involved, the following summarized accounting policies and their application are considered to be critical to understanding our business operations, financial condition, and operating results. Revenue Recognition Revenues are primarily derived from sales of generic, rare disease, and established brand pharmaceutical products, royalties, and other pharmaceutical services. Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. Variable consideration is estimated after the consideration of applicable information that is reasonably available. The Company generally does not have incremental costs to obtain contracts that would otherwise not have been incurred. The Company does not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days. Our gross product revenue is subject to a variety of deductions, which are estimated and recorded in the same period that the revenue is recognized, and primarily represent chargebacks, rebates, prompt payment (cash) discounts, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and other potential adjustments. Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, our changes of estimates reflecting actual results or updated expectations have not been material to our overall business. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with governmental allowances, Medicaid and other performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters. Chargebacks If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to chargeback estimates could cause an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable. If there were a 1% change in the chargeback estimates throughout the year, our net revenues would be affected by $5.9 million for the year ended December 31, 2023. Government Rebates If actual results were not consistent with our estimates as related to government rebates, we could be exposed to losses or gains that could be material, as changes to government rebate estimates could cause an increase or decrease in revenue recognized during the year and decrease or increase the government rebate reserve. If there were a 10% change in the government rebate estimates throughout the year, our net revenues would be affected by $2.4 million for the year ended December 31, 2023. Returns If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to returns estimates could cause an increase or decrease in revenue recognized during the year and decrease or increase the returned goods reserve. If there were a 10% change in the returns estimates throughout the year, our net revenues would be affected by $1.8 million for the year ended December 31, 2023. Administrative Fees and Other Rebates If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to these estimates could cause an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable. If there were a 10% change in the administrative fees estimates throughout the year, our net revenues would be affected by $5.6 million for the year ended December 31, 2023. 57 Table of Contents Prompt Payment Discounts If customers do not take 100% of available discounts as we estimate, we could need to re-adjust our methodology for calculating the prompt payment discount reserve. If there were a 10% decrease in the prompt payment discounts estimates throughout the year, our net revenues would increase by $2.3 million for the year ended December 31, 2023. Impairment of Goodwill and Intangible Assets Goodwill We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (October 31) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. The carrying value of goodwill at December 31, 2023 was $28.2 million. As part of the Novitium acquisition on November 19, 2021, we acquired goodwill of $24.6 million. We believe it is unlikely that there will be a material change in the future estimates or assumptions used to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we could be exposed to an impairment charge that could be material. Impairments of Long-Lived Assets We review our long-lived assets, including intangible assets with finite lives, for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the asset. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value which is generally an expected present value cash flow technique. Our policy in determining whether an impairment indicator exists comprises measurable operating performance criteria as well as other qualitative measures. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a product in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. If our assumptions are not correct, there could be an impairment loss in subsequent periods or, in the case of a change in the estimated useful life of the asset, a change in amortization expense. Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We consider many factors in evaluating whether the value of its intangible assets with indefinite lives may not be recoverable, including, but not limited to the discount rate, terminal growth rates, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance. 58 Table of Contents Contingent Consideration The fair value of our contingent consideration was $24.0 million and $35.1 million at December 31, 2023 and 2022, respectively. The fair value of contingent consideration is remeasured to the estimated fair value each reporting period with the change recognized as an operating expense in our consolidated statements of operations. Changes in fair value can result from changes in assumptions such as discount rates, probabilities or estimates of revenue and profits, and probability of achieving regulatory milestones, as well as the passage of time. These changes resulted in charges of $1.4 million and $3.8 million during the years ended December 31, 2023 and 2022, respectively. Stock-Based Compensation Stock-based compensation c ost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost for restricted stock is based on the closing market price of the stock at the grant date. The value of the award is recognized as expense on a straight-line basis over the employee’s requisite service period. Awards may also be issued in the form of Performance Stock Units (“PSUs”) to certain employees of the Company. PSUs represent the right to receive an amount of cash, a number of shares of common stock or a combination of both, contingent upon the achievement of specified performance and market objectives during a specified performance period. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term. Valuation of stock awards requires us to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the future volatility of our stock price and dividend yields. Changes in these assumptions can affect the fair value estimate. The following table summarizes stock-based compensation and ESPP expense included in our consolidated statements of operations: Years Ended December 31, (in thousands) 2023 2022 2021 Selling, general, and administrative $ 19,036 $ 13,316 $ 9,905 Research and development 910 751 564 Cost of sales 706 532 20 $ 20,652 $ 14,599 $ 10,489 Stock-based compensation cost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost for restricted stock is based on the closing market price of the stock at the grant date. The value of the award is recognized as expense on a straight-line basis over the employee’s requisite service period. Valuation of stock awards requires us to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the future volatility of our stock price and dividend yields. Changes in these assumptions can affect the fair value estimate. Changes in estimates could affect compensation expense within individual periods. If there were to be a 10% change in our stock-based compensation expense for the year, our Income (Loss) Before Expense (Benefit) for Income Taxes would be affected by $2.1 million for the year ended December 31, 2023. Income Taxes We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. 59 Table of Contents We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We have not identified any uncertain income tax positions that could have a material impact to the consolidated financial statements. We are subject to taxation in various U.S. jurisdictions, Canada, and India and remain subject to examination by taxing jurisdictions for the years 1998 and all subsequent periods due to the availability of net operating loss carryforwards. To the extent we are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. We consider potential tax effects resulting from discontinued operations and gains and losses included in other comprehensive income (loss) and record intra-period tax allocations, when those effects are deemed material. Our effective income tax rate is also affected by changes in tax law, our level of earnings, and the results of tax audits. Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. Legal and Other Contingencies The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements. Recent Accounting Standards For information on recent accounti ng standards, see Note 1, "Description of Business and Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements in Part II, Item 8. of this Form 10-K.