ANI Pharmaceuticals Inc: Form 10-Q for the period ended Jun 30, 2024

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the audited consolidated financial statements and the accompanying notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”), as well as the information contained under Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Risk Factors” contained in the 2023 Form 10-K, and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q , and other information provided from time to time in our other filings with the SEC. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” in our 2023 Form 10-K and this Quarterly Report on Form 10-Q.

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 launch of our lead asset, Cortrophin Gel, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our U.S.-based manufacturing capabilities. Our 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. In February 2024, our Canadian subsidiary 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, based on the exchange rate at closing. The sale closed on March 28, 2024 (see Note 4).

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 overall strategy is enabled by an empowered, collaborative, and purposeful team with high performance-orientation that seeks to deliver on our purpose of “Serving Patients, Improving Lives.”

Our growth strategy is driven by the following key growth drivers:

Building a successful Rare Disease platform

On June 24 2024, we announced that we entered into a definitive agreement pursuant to which we will acquire Alimera Sciences, Inc. (“Alimera”), which is currently expected to close late during the third quarter of 2024, subject to customary closing conditions, including receipt of required regulatory approvals and approval by Alimera’s shareholders. The acquisition of Alimera is anticipated to strengthen our Rare Disease business and expand our footprint beyond the U.S. with the addition of Alimera’s direct marketing operations located in Germany, the United Kingdom, Portugal, and Ireland, as well as its partnerships in Europe, Asia, and the Middle East.

Throughout 2023 and the first half of 2024, we continued to build and invest in our infrastructure to support growth in new areas of opportunity, such as pulmonology, ophthalmology, and gout in the ACTH market. 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 continued investment in our Rare Disease platform, our expenditures were significantly higher during the first half of 2024 as compared to the prior year.

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.

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.

We plan to continue to expand our Rare Disease business, through a combination of organic growth, as described above, and acquisition. See below for expanded discussion on our pending business combination with Alimera. 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 in the Generics, Established Brands, and Other segment was the acquisition of Novitium in 2021, which included 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 capabilities. 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 capabilities through strategic partnerships and acquisitions of assets and businesses.During 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, acquired an ANDA and registered patents and pending patent applications from Slayback Pharma Limited Liability Company, and acquired additional ANDAs and product rights for two products in the second half of 2023. During 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were commercial at the time of acquisition. .

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.

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.

Recent Developments

Pending merger agreement

On June 21, 2024, the Company entered into an Agreement and Plan of Merger with Alimera and ANIP Merger Sub INC. (“Merger Sub”), providing for the merger of Merger Sub with and into Alimera (the “Merger”), with Alimera surviving the Merger as a wholly owned indirect subsidiary of the Company. Capitalized terms used herein, but not otherwise defined, have the meanings set forth in the Merger Agreement.

At the effective time of the Merger (the “Effective Time”), each outstanding share of common stock, par value $0.01 per share, of Alimera, outstanding immediately prior to the Effective Time will automatically be converted into the right to receive (i) $5.50 in cash, without interest and (ii) one contingent value right (a “CVR”), which shall represent the right to receive the Milestone Payments (as defined below) subject to the terms and conditions set forth in the CVR Agreement (as defined below) (the consideration contemplated by (i) and (ii), together, the “Merger Consideration”).

At or immediately prior to the Effective Time, the Company will enter into a contingent value rights agreement (the “CVR Agreement”), pursuant to which each holder of Alimera Common Stock, as well as holders of Alimera Warrants, Alimera Options, Alimera PSUs, Alimera RSAs and Alimera RSUs, may become entitled to contingent cash payments per CVR (each, a “Milestone Payment”), such payment(s) being contingent upon, and subject to, satisfaction of the Milestones (as defined below).

When issued, each CVR will entitle the holder (the “Holder”) to receive Milestone Payments for 2026 and 2027, upon satisfaction of the applicable Milestones. The Milestone Payments for each CVR will equal the product (rounded to the nearest 1/100 of $0.01) of $0.25 multiplied by a fraction (which is no case will exceed one), and (i) for 2026, equals the amount, if any, by which the 2026 Net Revenue exceeds $140.0 million, divided by $10.0 million (subject to adjustment for the exercise price of Eligible Options), and (ii) for 2027, equals the amount, if any, by which the 2027 Net Revenue exceeds $160.0 million, divided by $15.0 million (subject to adjustment for the exercise price of Eligible Options) (the occurrence of the events in clauses (i) and (ii), each, a “Milestone”).

The Merger Agreement requires Alimera, as promptly as reasonably practicable, and in any event within 25 business days following the date of the Merger Agreement, to prepare and file with the SEC a proxy statement for the purpose of seeking stockholder approval to the Merger Agreement.

Consummation of the Merger is subject to certain conditions, including approval by Alimera’s stockholders, the absence of any legal restraints restraining, enjoining, preventing, prohibiting or otherwise making illegal the consummation of the Merger, expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other specified required regulatory approvals that may be required will have been obtained, and each party’s performance of its obligations in all material respects under the Merger Agreement.

In connection with the Merger, JPMorgan Chase Bank, N.A. and Blackstone Credit & Insurance (the “Lenders”) have committed to provide debt financing for the transaction in an aggregate principal amount equal to $280.0 million, on the terms and subject to the conditions set forth in a commitment letter, dated June 21, 2024 (the “Debt Commitment Letter”). The obligations of the Lenders to provide debt financing under the Debt Commitment Letter are subject to customary conditions, including, without limitation, execution and delivery of definitive documentation consistent with the Debt Commitment Letter.

During the three and six months ended June 30, 2024, the Company incurred approximately $3.5 million, respectively, in transaction costs related to this pending Merger Agreement, all of which were expensed.

Restructuring

On February 15, 2024, ANI Pharmaceuticals Canada, Inc., a wholly owned subsidiary of the Company, entered into an agreement (the “Agreement”) with 1540700 Ontario Limited (“Buyer”) for the sale of ANI’s Oakville, Ontario former manufacturing site (the “Property”) for a total purchase price of $19.2 million Canadian Dollars, or approximately $14.2 million, based on the exchange rate at closing. During February 2024, and in accordance with the Agreement, the Buyer deposited a total of approximately $1.9 million Canadian Dollars, or approximately $1.4 million in refundable deposits in escrow as part of the total purchase price.

On March 28, 2024 the Company completed the sale of the Property. After payment of commissions, taxes, and other related costs of approximately $0.6 million, the Company received a net cash amount of approximately $13.5 million at closing. The gain on the sale of the Property was approximately $5.3 million, recorded in the unaudited interim condensed consolidated statements of operations.

GENERAL

Impacts to our second quarter 2024 and 2023 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:

(in thousands)

40

The following table sets forth, for all periods indicated, items in our unaudited interim condensed consolidated statements of operations as a percentage of net revenues:

41

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Net Revenues

(in thousands)

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.

Net revenues for the three months ended June 30, 2024 were $138.0 million compared to $116.5 million for the same period in 2023, an increase of 18.4%, primarily as a result of the following factors:

• Net revenues for generic pharmaceutical products were $74.0 million during the three months ended June 30, 2024, an increase of 16.8% compared to $63.3 million for the same period in 2023, driven by increased volumes and the inclusion of 2023 launches and new product launches in 2024. From a product perspective, the increase was principally driven by revenues from year over year increases in products such as Colestipol, Estradiol, Pentoxifylline, Pirfenidone, Thyroid, and various other products tempered by a decrease in revenues of Famotidine, Paliperidone, Misoprostol, and Nebivolol among others.
• Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $14.9 million during the three months ended June 30, 2024, a decrease of 48.5% compared to $28.9 million for the same period in 2023, driven by a net decrease in volume. During the three months ended June 30, 2023, we benefited from supplying incremental volume in markets that were experiencing supply chain disruptions for competing products.
• Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Cortrophin Gel, were $49.2 million during the three months ended June 30, 2024, an increase of $24.9 million from $24.3 million for the same period in 2023. This increase was driven by increased volume in this third year of launch (product was launched in late January 2022).

Cost of Sales (Excluding Depreciation and Amortization)

(in thousands)

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 unaudited interim condensed consolidated statements of operations.

For the three months ended June 30, 2024, cost of sales increased to $57.7 million from $42.3 million for the same period in 2023, an increase of $15.4 million, or 36.5%. The increase is primarily due to significant net growth in sales volumes of pharmaceutical products and significant growth of royalty bearing products, including Cortrophin Gel.

Cost of sales, as a percentage of net revenues, increased to 41.8% from 36.3% for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to a shift in product mix year over year, increase in sales volume, and increase in sales of products that bear a royalty payable.

During the three months ended June 30, 2024, approximately 27% of our raw material purchases were from one supplier. During the three months ended June 30, 2023, no single vendor represented more than 10% of our raw material inventory purchases.

Other Operating Expenses, net

(in thousands)

For the three months ended June 30, 2024, other operating expenses, net increased to $75.2 million from $61.9 million for the same period in 2023, an increase of $13.3 million, or 21.5%, primarily as a result of the following factors:

• Research and development expenses decreased from $7.4 million to $7.3 million, a nominal decrease of approximately $0.1 million or 1.1% when comparing the three months ended June 30, 2024 to the same period in 2023.
• Selling, general, and administrative expenses increased from $38.8 million to $52.8 million, an increase of $14.1 million, or 36.3%, due to increased employment related costs, continued investment in our Rare Disease segment sales and marketing activities, legal expenses, expenses related to the pending acquisition of Alimera, as well as an overall increase in activities required to support the growth of our business.
• Depreciation and amortization expense was $14.7 million for the three months ended June 30, 2024, compared to $14.7 million for the same period in 2023.
• We recognized losses of $0.4 million and $1.0 million in the three months ended June 30, 2024 and 2023, respectively, for the contingent consideration fair value adjustment. The change in the fair value adjustment during the three months ended June 30, 2024 is primarily related to changes in the anticipated timing of cash flows (i.e., moving closer to the anticipated payment dates of the consideration for the third milestone in connection with the acquisition of Novitium). Additionally, the fair value measurement adjustment in the three months ended June 30, 2024 is related to only the third milestone, whereas the fair value adjustment at June 30, 2023 related to all three milestones.

Other Expense, net

(in thousands)

For the three months ended June 30, 2024, we recognized total other expense of $7.5 million as compared to total other expense of $7.2 million for the same period in 2023, an increase of $0.3 million.

• We recorded an unrealized loss on our investment in equity securities held in CG Oncology of approximately $2.7 million is due to the mark to market to fair value of equity securities as of the balance sheet date. There was no comparable loss on investment in the three months ended June 30, 2023.
• Interest expense, net for the three months ended June 30, 2024 consists primarily of interest expense on borrowings under our Term Facility of approximately $8.5 million and amortization of deferred debt issuance costs of approximately $0.6 million, offset by dividend income earned on our money market funds and interest earned on our cash balances of approximately $2.6 million, the effects of the interest rate swap of approximately $1.6 million, and interest capitalized into construction in progress. The decrease in interest expense is primarily related to the increase in the dividend income and interest income earned on our larger cash balances during the current period, as interest expense on borrowing under our Term Facility and amortization of deferred debt issuance costs are consistent with the three months ended June 30, 2023.

Income Tax Expense (Benefit)

(in thousands)

Income tax expense (benefit) consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

For the three months ended June 30, 2024, we recognized an income tax expense of approximately $0.0 million. The Company’s effective tax rate was 0.0% after discrete items for the three months ended June 30, 2024. The effective tax rate differed from the federal statutory rate of 21% primarily due to state taxes, stock based compensation, and non-deductible expenses related to the pending business combination which were treated as a discrete item during the quarter which affects the estimated tax rate.

For the three months ended June 30, 2023, we recognized an income tax benefit of $1.0 million. The income tax expense resulted from applying an estimated annual worldwide effective tax rate of (19.0)% to pre-tax consolidated income of $5.2 million reported during the period. There were no material discrete items occurring during the three months ended June 30, 2023.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Net Revenues

(in thousands)

Net revenues for the six months ended June 30, 2024 were $275.5 million compared to $223.3 million for the same period in 2023, an increase of 23.3%, primarily as a result of the following factors:

• Net revenues for generic pharmaceutical products were $144.2 million during the six months ended June 30, 2024, an increase of 13.5% compared to $127.0 million for the same period in 2023, driven by increased volumes and the inclusion of 2023 launches and new product launches in 2024. From a product perspective, the increase was principally driven by revenues from year over year increases in products such as Colestipol, Estradiol,Lacosamide, Nitrofurantoin, Pentoxifylline, Pirfenidone, Prednisone, Tranexamic Acid, and various other products tempered by a decrease in revenues of Famotidine, Meloxicam, Nebivolol, Paliperidone, and Prochlorperazine among others.
• Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $45.2 million during the six months ended June 30, 2024, a decrease of 18.9% compared to $55.7 million for the same period in 2023, driven by a net decrease in volume. During the first quarter of 2024, we were successful in supplying incremental volume in markets that were experiencing supply chain disruptions for competing products, which did not continue into the second quarter of 2024.
• Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Cortrophin Gel, were $86.1 million during the six months ended June 30, 2024, an increase of $45.5 million from $40.6 million for the same period in 2023. This increase was driven by increased volume in this third year of launch (product

was launched in late January 2022).

Cost of Sales (Excluding Depreciation and Amortization)

(in thousands)

For the six months ended June 30, 2024, cost of sales increased to $106.9 million from $80.0 million for the same period in 2023, an increase of $26.9 million, or 33.6%. The increase is primarily due to significant net growth in sales volumes of pharmaceutical products and significant growth of royalty bearing products, including Cortrophin Gel.

Cost of sales, as a percentage of net revenues, increased to 38.8% from 35.8% for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to a shift in product mix year over year, increase in sales volume, and increase in sales of products that bear a royalty payable.

During the six months ended June 30, 2024, approximately 24% of our raw material purchases were from one supplier. During the six months ended June 30, 2023, no single vendor represented more than 10% of our raw material inventory purchases.

Other Operating Expenses, net

(in thousands)

For the six months ended June 30, 2024, other operating expenses, net increased to $143.1 million from $121.0 million for the same period in 2023, an increase of $22.1 million, or 18.2%, primarily as a result of the following factors:

• Research and development expenses increased from $13.3 million to $17.8 million, an increase of $4.5 million or 33.9%, primarily due to a higher level of activity associated with ongoing and new projects in the six months ended June 30, 2024.
• Selling, general, and administrative expenses increased from $75.2 million to $100.8 million, an increase of $25.6 million, or 34.0%, due to increased employment related costs, continued investment in our Rare Disease segment sales and marketing activities, legal expenses, expenses related to the pending acquisition of Alimera, as well as an overall increase in activities required to support the growth of our business.
• Depreciation and amortization expense was $29.4 million for the six months ended June 30, 2024, compared to $29.4 million for the same period in 2023.
• We recognized losses of $0.4 million and $2.0 million in the six months ended June 30, 2024 and 2023, respectively, for the contingent consideration fair value adjustment. The change in the fair value adjustment during the six months ended June 30, 2024 is primarily related to changes in the anticipated timing of cash flows (i.e., moving closer to the anticipated payment dates of the consideration for the third milestone in connection with the acquisition of Novitium) and fluctuations in the discount rates, offset by adjustments recorded upon payment of the Gross Profit Earn-Out during the first quarter. Additionally, the fair value measurement adjustment in the six months ended June 30, 2024 is related to only the third milestone, whereas the fair value adjustment at June 30, 2023 related to all three milestones.
• We recognized restructuring activities expenses of $1.1 million in the six months ended June 30, 2023. In 2023 costs included severance and other employee benefits costs of $0.2 million, $0.7 million of accelerated depreciation costs and $0.2 million for other miscellaneous costs accrued in 2022. There were no restructuring expenses recognized in the six months ended June 30, 2024.
• We recognized a gain related to the sale of the former Oakville, Ontario manufacturing site of approximately $5.3 million during the six months ended June 30, 2024. There was no comparable sale in the six months ended June 30, 2023.

Other Expense, net

(in thousands)

For the six months ended June 30, 2024, we recognized total other expense, net of $2.4 million as compared to total other expense of $14.9 million for the same period in 2023, a decrease of $12.5 million.

• The unrealized gain on investment in equity securities of approximately $6.9 million is due to the mark to market to fair value of equity securities held in CG Oncology as of the balance sheet date. There was no comparable gain on investment in the six months ended June 30, 2023.
• Interest expense, net for the six months ended June 30, 2024 consists primarily of interest expense on borrowings under our Term Facility of approximately $17.0 million and amortization of deferred debt issuance costs of approximately $1.2 million, offset by dividend income earned on our money market funds and interest earned on our cash balances of approximately $5.4 million, the effects of the interest rate swap of approximately $3.2 million, and interest capitalized into construction in progress. The decrease in interest expense is primarily related to the increase in the dividend income and interest income earned on our larger cash balances during the current period, as interest expense on borrowing under our Term Facility and amortization of deferred debt issuance costs are consistent with the six months ended June 30, 2023.

Income Tax Expense (Benefit)

(in thousands)

For the six months ended June 30, 2024, we recognized an income tax expense of $7.1 million. The Company’s effective tax rate was 30.9% after discrete items for the six months ended June 30, 2024. The effective tax rate differed from the federal statutory rate of 21% primarily due to state taxes, stock based compensation, tax on the sale of the Oakville, Ontario manufacturing site, and recording of a withholding tax liability on the proceeds of the sale, and non-deductible expenses related to a planned acquisition.

For the six months ended June 30, 2023, we recognized an income tax benefit of $0.3 million. The income tax expense resulted from applying an estimated annual worldwide effective tax rate of (3.7)% to pre-tax consolidated income of $7.4 million reported during the period. There were no material discrete items occurring during the six months ended June 30, 2023.

LIQUIDITY AND CAPITAL RESOURCES

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 Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries. As of June 30, 2024, $3.0 million of principal of the loan was recorded as current borrowings in the condensed consolidated balance sheet. As of June 30, 2024, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing subject to certain conditions.

On June 21, 2024, in connection with the pending business combination with Alimera, JPMorgan Chase Bank, N.A. and Blackstone Credit & Insurance as Lenders committed to provide debt financing for the Merger in an aggregate principal amount equal to $280.0 million, on the terms and subject to the conditions set forth in the Debt Commitment Letter. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q for further information regarding the Merger.

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. The 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.

We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, our Credit Facility, under which $40.0 million remains available for borrowing as of June 30, 2024, and the anticipated debt financing provided by the Lenders for the Merger in an aggregate principal amount equal to $280.0 million, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.

Cash Flows

The following table summarizes the net cash and cash equivalents (used in) provided by operating activities, investing activities, and financing activities for the periods indicated:

(in thousands)

Net Cash Provided by Operations

Net cash provided by operating activities was $35.7 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $42.1 million during the same period in 2023, a decrease of $6.4 million. The decrease in cash provided by operating activities resulted from an increase in non-cash items such as stock-based compensation offset by non-recurring transactions such as gain on the sale of the Oakville, Ontario manufacturing site, and the gain on investment of equity securities as well as significant fluctuations in our assets and liabilities due to increased activities.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2024 was $4.5 million, principally due to the proceeds received from the sale of the Oakville, Ontario manufacturing site in March 2024 of approximately $13.5 million offset by capital expenditures of approximately $9.0 million. Net cash used in investing activities for the six months ended June 30, 2023 was $9.2 million, principally due to $4.9 million of capital expenditures and acquisitions of ANDAs from the estates of Akorn Holding Company for $4.3 million.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities for the six months ended June 30, 2024 was $21.2 million, principally resulting from $12.5 million paid to the Company Members of Novitium, $10.0 million of treasury stock purchased related to restricted stock vests, $1.5 million maturity payments on the Term Facility, and $0.8 million convertible preferred stock dividends paid, offset by $3.6 million from proceeds from stock option exercises and ESPP purchases. Net cash provided by financing activities for the six months ended June 30, 2023 was $75.6 million, principally due to $80.6 million in proceeds from the May 2023 public offering and $1.4 million from proceeds from stock option exercises and ESPP purchases. This is offset by cash used in financing activities related to $4.1 million of treasury stock purchased in relation to restricted stock vests, $1.5 million maturity payments on the Term Facility, and $0.8 million convertible preferred stock dividends paid.

CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in Part II, Item 8. Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies, in our 2023 Form 10-K. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. There have been no material changes to our critical accounting estimates since the 2023 Form 10-K.

CONTRACTUAL OBLIGATIONS

As of June 30, 2024, our contractual obligations have not changed materially from the amounts reported in our 2023 Form 10-K.

Market risks include interest rate risk, equity risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Of these risks, interest rate risk, equity risk, and foreign currency exchange rate risk could have a significant impact on our results of operations. There have been no material changes in our exposure to market risks since the end of the most recent fiscal year as reported in Part II, Item 7A of our 2023 Form 10-K.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2024. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, please carefully consider the factors described under the heading “Risk Factors” in our 2023 Form 10-K in Part I, Item 1A. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results.

The following are new significant risk factors related to the pending acquisition of Alimera 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.

Risks Related to the Merger

The Merger is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected time frame, or at all, could have a material adverse effect on our business, operating results, financial condition and our share price.

On June 21, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alimera and ANIP Merger Sub INC., a Delaware corporation and wholly owned indirect subsidiary of us (“Merger Sub”), pursuant to which, and on the terms and subject to the conditions set forth therein, (i) Merger Sub will be merged with and into Alimera (the “Merger”), with Alimera surviving the Merger as a wholly owned subsidiary of ANI and (ii) at the effective time of the Merger, each outstanding share of Alimera common stock, par value $0.01 per share, will automatically be converted into the right to receive (A) $5.50 in cash, without interest and less any applicable withholding taxes, and (B) one contingent value right (a “CVR”). Capitalized terms used herein, but not otherwise defined, have the meanings set forth in the Merger Agreement.

Consummation of the Merger is subject to certain conditions, including approval by Alimera’s stockholders, the absence of any legal restraints restraining, enjoining, preventing, prohibiting or otherwise making illegal the consummation of the Merger, expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with such waiting period having expired on July 29, 2024 and any other specified required regulatory approvals that may be required will have been obtained, and each party’s performance of its obligations in all material respects under the Merger Agreement.

We cannot predict whether and when the conditions to the Merger will be satisfied. If one or more of these conditions are not satisfied, and as a result, we do not complete the Merger, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Merger. Certain costs associated with the Merger have already been incurred or may be payable even if the Merger is not consummated. Finally, any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our partners, suppliers and employees, could continue or accelerate in the event that we fail to consummate the Merger.

Our share price may also fluctuate significantly based on announcements by Alimera, other third parties, or us regarding the Merger or based on market perceptions of the likelihood of the satisfaction of the conditions to the consummation of the Merger. Such announcements may lead to perceptions in the market that the Merger may not be completed, which could cause our share price to fluctuate or decline. Other factors outside of our control, such as a governmental entity enacting legislation that prohibits the Merger, could cause us not to satisfy the governmental entity condition and thus the Merger would not be consummated.

If we do not consummate the Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the Merger will be consummated. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our common stock.

Actions of activist stockholders or other parties may impair our ability to consummate the Merger.

Activist stockholders could also take actions that disrupt the business of Alimera, divert the time and attention of their management and employees away from their business operations, cause them to incur substantial additional expense, create perceived uncertainties among current and potential customers, clients, suppliers, employees and other constituencies as to their future direction as a consequence thereof, which may result in lost sales, impaired supplier relationships or other business arrangements and the loss of potential business opportunities, and make it more difficult to attract and retain qualified personnel and business partners.

We have incurred, and will continue to incur, direct and indirect costs as a result of the Merger.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the Merger, including costs that we may not currently expect. We must pay substantially all of these costs and expenses whether or not the transaction is completed. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent these acquisition and integration expenses are higher than anticipated, we may experience liquidity or cash flow issues. Among other termination rights, and subject to certain limitations, each of Alimera and ANI may terminate the Merger Agreement if the Merger is not consummated by December 21, 2024, and each of Alimera and ANI may mutually agree to terminate the Merger Agreement.

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

Alimera’s obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in Alimera’s historical financial statements, may be greater than we have anticipated. The obligations and liabilities of Alimera could have a material adverse effect on Alimera’s business or Alimera’s value to us or on our business, financial condition, or results of operations. Under the Merger Agreement, we have only limited indemnification with respect to obligations or liabilities of Alimera, 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.

We will incur substantial debt in order to satisfy our obligations in connection with the acquisition of Alimera.

In connection with the acquisition, JP Morgan Chase Bank, N.A. and Blackstone Credit & Insurance have committed to provide debt financing for the transaction in an aggregate principal amount equal to $280.0 million, on the terms and subject the conditions set forth in a commitment letter, dated June 21, 2024 (the “Debt Commitment Letter”). In order to service the debt we incur under the Debt Commitment Letter, we will require a significant amount of cash. Our ability to make scheduled payments of principal and interest depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt or equity financing on terms that may not be favorable to us or available to us at all. Our ability to refinance any such debt will depend on the capital markets and our financial condition at that time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default under our current or future indebtedness. Any event of default or inability to otherwise satisfy our obligations could have a material adverse effect on our future operating results and financial condition.

As a result of the Merger, we will record goodwill in connection with our acquisition of Alimera, and if it becomes impaired, our earnings could be significantly impacted.

Under current accounting methods, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis and more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. In connection with our acquisition of Alimera we will record goodwill in the fair value amount of such acquisition. Although we do not anticipate impairment charges, if we conclude that some portion of such goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded against earnings.

A goodwill impairment charge could be caused by a decline in our stock price or the occurrence of a triggering event that compounds negative financial results. Therefore, following the Merger, and our recording of goodwill in connection therewith, if such goodwill becomes impaired, our earnings could be significantly and adversely affected.

The Merger may become the target of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. The outcome of any litigation is uncertain, but regardless of the outcome of any such lawsuits, they could delay or prevent the Merger or otherwise adversely affect us financially.

If the acquisition of Alimera is consummated, the combined company may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.

Even if the Merger is consummated, the combined company may not perform as we or the market expects. Risks associated with the combined company following the Merger include:

• integrating businesses is a difficult, expensive, and time-consuming process, and the failure to successfully integrate our businesses with the business of Alimera in the expected time frame would adversely affect our financial condition and results of operation;
• there may be inconsistencies in standards, controls, procedures and policies that will need to be reconciled;
• the Merger will materially increase the size of our operations, and if we are not able to effectively manage our expanded operations, our common stock price may be adversely affected;
• it is possible that our key employees or key employees of Alimera might decide not to remain with us after the Alimera acquisition is completed, and the loss of such personnel could have a material adverse effect on the financial condition, results of operations, and growth prospects of the combined company;
• the success of the combined company will also depend upon relationships with third parties and Alimera’s or our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Merger. Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition, and results of operations; and
• if government agencies or regulatory bodies impose requirements, limitations, costs, divestitures or restrictions on the consummation of the Merger, the combined company’s ability to realize the anticipated benefits of the acquisition may be impaired.

Further, we intend to enter into the Merger with the expectation that the acquisition will result in, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company and operating efficiencies. Achieving the benefits of the Merger is subject to a number of uncertainties, including whether we integrate Alimera in an efficient manner, and general competitive factors in the marketplace. The occurrence of any of these Merger-related events individually or in combination could materially and adversely affect our business, results of operations, financial condition and the market price of our common stock.

Following the closing of the Merger, if we fail to successfully manage our international operations, our business, operating results and financial condition could suffer.

Alimera has direct operations and markets its products outside the United States, with international operations that cover the United Kingdom and much of Europe and the Middle East. We have not historically conducted any operations or marketed any of our products outside the United States. As a result, following the closing of the Merger, the percentage of our revenues generated outside of the United States will increase materially, and our new international operations will require significant management attention and financial resources.

There is a high level of regulation in all markets where Alimera’s products are sold and great diversity in how those markets operate. Consequently, experience and expertise will be required in understanding the market dynamics of each country, the rules and regulations in place governing the sale of medicines, the codes of practice governing promotion of medicines, different currencies, the financial frameworks applying to taxation (both corporate and

value-added tax) and the need to communicate in different languages.

Moreover, Alimera’s international operations rely on distributors in many countries to provide adequate levels of experience and expertise on its behalf. We will need to monitor and manage these relationships appropriately to address risks in these markets.

Conducting extensive international operations subjects us to risks that are inherent in international operations, including:

• extended collection timelines for accounts receivable and greater working capital requirements;
• multiple, conflicting legal systems and unexpected changes in legal requirements such as privacy and data protection laws and regulations, employment laws, regulatory requirements and other governmental approvals, permits and licenses;
• tariffs, export restrictions, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets, including China and certain other parts of Asia;
• changes in currency exchange rates;
• currency transfer and other restrictions and regulations that may limit our ability to sell our products internationally or repatriate profits to the United States;
• difficulties adapting to new cultures, business customs, and legal systems;
• trade laws and business practices favoring local competition;
• potential tax issues, including restrictions on repatriating earnings, resulting from multiple, conflicting and complex tax laws and regulations;
• weaker intellectual property protection in some countries;
• natural disasters, political, economic, and social instability, including the effects of ongoing U.S.-China diplomatic and trade friction, social unrest in China, the recent conflicts between Russia and Ukraine, Israel and Hamas, and global sanctions imposed in response thereto, the possibility of a wider European or global conflict, or other war or terrorist activities or the threat of war and terrorism; and
• adverse economic conditions, including increasing inflation and the stability and solvency of business financial markets, financial institutions and sovereign nations.

In particular, regulatory oversight of pharmaceutical products, including production, marketing and sales, can vary significantly among countries and will require additional oversight by our compliance and marketing teams. We will need to spend significantly more time and invest in additional resources to ensure compliance with regulatory regimes outside the United States. Similarly, there are often supply chain risks that are specific to a given region, and our expansion outside the United States will expose us to additional risks and expenses related thereto.

In addition, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Although we intend to implement policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products in one or more countries, and could also materially and adversely harm our business and financial condition.

Following the closing of the Merger, we will need to meet certain additional requirements for our international operations, including adequate levels of reimbursement and various regulatory approvals, and our inability to meet these requirements could adversely affect our results of operations.

Following the closing the Merger, we will have certain additional requirements that we will need to meet in order to engage in international operations. For example, in the European Economic Area (“EEA”) and the United Kingdom, each country has a different reviewing body that evaluates reimbursement dossiers submitted by marketing authorization holders of new drugs and then makes recommendations as to whether or not the drug should be reimbursed. Limitations on reimbursement could be imposed at the national, regional or local level or by fiscal intermediaries in each country, either through the initial authorization process or at some point in the future. In addition, due to price referencing within the EEA, the United Kingdom and certain other countries, existing pricing in our current markets could be negatively affected by a change in pricing in a country where Alimera currently has reimbursement or by a new price in a country where we or Alimera obtain reimbursement approval in the future.

Following the closing of the Merger, our business could also be adversely affected if governments, private insurers or other reimbursing bodies or payers limit the indications for reimbursement approval to a smaller subset than we believe our products are effective in treating or establish a limit on the frequency with which our products may be administered that is less often than we believe would be effective. Those actions could limit our revenues and harm our business.

We will also need to maintain or obtain marketing authorization and commercialization rights in countries outside the United States. Certain countries, such as those in the EEA, require minimum sales within three years or licenses may be revoked if extensions are not negotiated. Alimera does not currently have rights in China and certain other parts of Asia. Following the closing of the Merger, to market our products in foreign jurisdictions, we will be required to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. We may not receive the necessary approvals to commercialize our products in any additional market.

The process of obtaining regulatory approvals and clearances in jurisdictions where our products are not approved will require us to expend substantial time and capital. Despite the time and expense incurred, regulatory approval is never guaranteed. The number of preclinical and clinical tests that will be required for regulatory approval varies depending on the drug candidate, the disease or condition for which the drug candidate is in development, the jurisdiction in which we are seeking approval and the regulations applicable to that particular drug candidate. The applicable regulatory authorities may make requests or suggestions regarding our clinical trials, resulting in an increased risk of difficulties or delays in obtaining regulatory approval. For example, the regulatory authorities may not approve of certain of our methods for analyzing our trial data, including how we evaluate the relationship between risk and benefit. Additionally, the foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. For all of these reasons, following the closing of the Merger, we may not obtain additional foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

Following the closing of the Merger, our reliance on third parties to manufacture and test certain of our products will increase, and if any of these third parties is unable to satisfy our demand, our business, operating results and financial condition could suffer.

Alimera does not have in-house manufacturing capability and depends entirely on single source third-party manufacturers for the manufacture of its products, including for supply of active pharmaceutical ingredients, the product applicator, the product implants, and the final assembly of the injectors with the implants. In addition, Alimera relies on third parties for the quality release testing. If any of these third-party manufacturers breaches its agreement, is unable to meet its contractual or quality requirements or becomes unwilling to perform for any reason, we may be unable, in a timely manner or at all, to locate alternative acceptable manufacturers or testing facilities, as applicable, enter into favorable agreements with them and ensure that they are approved by the applicable regulatory authorities, such as the FDA. For example, Alimera relies on (subject to certain exceptions) an agreement with an exclusive supplier for the manufacturing and supply of YUTIQ, which has an initial term of two years through May 2025. Following the Merger, if the supplier is unwilling to extend the supply agreement, and we are unable to timely transfer manufacturing to a replacement supplier or make other arrangements to supply product, we may not be able to fulfill demand for YUTIQ. In addition, on July 12, 2024, the supplier of YUTIQ received a warning letter from the FDA alleging violations of current good manufacturing practice (CGMP) requirements in connection with a February 2024 FDA inspection and associated February 2024 Form FDA-483 specifically related to the manufacturing of YUTIQ at the supplier’s facility (the "Warning Letter"). The Warning Letter requires the supplier to implement certain corrective and preventive actions. Any failure by the supplier to remediate to the FDA’s satisfaction these findings or any future findings the FDA may have, could result in the supply of YUTIQ being adversely effected or terminated, and, if such findings remain unresolved following the Merger, our ability to fulfill demand for YUTIQ could be materially impaired.

Further, Alimera’s suppliers and manufacturers rely on additional third parties for the manufacture of component parts. Any inability of Alimera’s contract manufacturers to acquire sufficient quantities of the active pharmaceutical ingredients and other component parts in a timely manner from these third parties could delay commercial production of YUTIQ or ILUVIEN.

Any of these events could adversely affect our ability following the Merger to fulfill demand for the acquired products. In addition, any of these events could in turn have a material adverse effect on our business, financial position, and operating results, including an impairment of the acquired assets, or cause a decline in the price of our common stock.