ANI Pharmaceuticals Inc: Form 10-Q for the period ended Sep 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 committed to its mission of “Serving Patients, Improving Lives” by developing, manufacturing, and commercializing innovative and high quality therapeutics. Our Company is focused on delivering sustainable growth through its Rare Disease business, which markets novel products in the areas of ophthalmology, rheumatology, nephrology, neurology, and pulmonology; its Generics business, which leverages R&D expertise, operational excellence, and U.S.-based manufacturing; and its Established Brands business.

On September 16, 2024, the Company completed its previously announced acquisition of Alimera Sciences, Inc., a Delaware corporation (“Alimera”) pursuant to the terms of the Agreement and Plan of Merger, dated as of June 21, 2024 (the “Merger Agreement”), by and among the Company, Alimera and ANIP Merger Sub INC., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into Alimera, with Alimera surviving the merger as a wholly-owned subsidiary of the Company (the “Merger”). In connection with the Merger, the Company added two growing and durable assets, ILUVIEN® (fluocinolone acetonide intravitreal implant) 0.19 mg, which has received marketing authorization and reimbursement in the United States (“U.S.”) and 24 countries for the treatment of diabetic macular edema (“DME”) and YUTIQ® (fluocinolone acetonide intravitreal implant) 0.18 mg, available in the U.S. for the treatment and prevention of non-infectious uveitis affecting the posterior segment of the eye (“NIU-PS”).

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 “Restructuring Canada Operations” to the Notes to Condensed Consolidated Financial Statements).

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

The Alimera Acquisition 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. ILUVIEN and YUTIQ are durable assets with high barriers to genericization which the Company believes have a clear role for patients in need of alternative therapeutic options. ANI sees the potential to unlock significant additional growth for both ILUVIEN and YUTIQ through commercial synergies and execution.

We have spent significant time, effort and resources in establishing our Rare Disease platform. Throughout 2023 and 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. We plan to continue to invest in 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. 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. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S. as our foundational Rare Disease asset.

During the first quarter of 2024, ANI launched a targeted ophthalmology-focused sales force for Cortrophin Gel. The team has continued to gain momentum in ophthalmology, driving significant growth in the number of new patient starts in the second quarter and third quarter to date. Importantly, the addition of Alimera expands the reach of the ophthalmology sales team and believes there will be significant overlap between high potential prescribers of Cortrophin Gel, ILUVIEN and YUTIQ.

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 recently completed 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, and Veregen. 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

Acquisition of Alimera Sciences, Inc.

On September 16, 2024, the Company completed our previously announced merger with Alimera (the “Closing”). At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of Alimera (the “Alimera Common Stock”) outstanding immediately prior to the Effective Time including each Alimera RSA, Alimera PSU, Alimera RSU, and Alimera Warrant (as defined below), but excluding any treasury shares or shares owned by the Company, Merger Subs or any other subsidiary of the Company or Alimera), was canceled and ceased to exist and was converted into the right to receive (i) $5.50 in cash (“Closing Cash Consideration”), and (ii) 1 contingent value right (a “CVR”), which represents the right to receive the milestone payments (as defined below) subject to the terms and conditions set forth in the CVR Agreement entered into on September 16, 2024 (clauses (i) and (ii) collectively, the “Merger Consideration”). The Company also repaid $72.5 million of Alimera debt.

Each CVR entitles the holder to receive milestone payments for 2026 and 2027. The milestone payments for each CVR equals 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 applicable Alimera Options).

In addition to the amounts payable to the holders thereof in connection with the Closing, all of the outstanding awards of restricted stock with respect to shares of Alimera Common Stock (each, an “Alimera RSA”), each Alimera Performance Stock Unit (“Alimera PSU”), each Alimera Restricted Stock Unit (“Alimera RSU”) and each Alimera Warrant that were outstanding immediately prior to the Effective Time were automatically canceled and converted into the right to receive one (1) CVR per share of Alimera Common Stock then underlying the applicable instrument.

Each stock option previously granted by Alimera to purchase Alimera Common Stock (each, an “Alimera Option”) that was outstanding and unexercised as of the Effective Time and which had a per share exercise price that was less than the Closing Cash Consideration was, in addition to the amounts payable to the holders thereof in connection with the Closing, automatically canceled and converted into the right to receive one (1) CVR per share of Alimera Common Stock then underlying such Alimera Option. No other Alimera Options were cancelled and converted into the right to receive a CVR, provided that each Alimera Option with a per share exercise price greater than or equal to the Closing Cash Consideration but less than the Total Consideration (as defined in the Merger Agreement) may receive a payment in connection with the payout of the CVRs (if any).

During the three and nine months ended September 30, 2024, the Company incurred approximately $8.8 million and $12.2 million, respectively, in transaction costs related to the Merger Agreement, all of which were expensed. See Note 3 “Business Combination” to the Notes to Condensed Consolidated Financial Statements for further information on the acquisition.

New Capital Structure

On August 13, 2024, we completed an offering of $316.25 million aggregate principal amount of 2.25% convertible senior notes due September 1, 2029. The Company utilized a majority of the net proceeds as well as cash from its balance sheet to repay in full its existing senior secured term loan facility with total unpaid principal of $292.5 million. The initial conversion price of the convertible notes is $74.11 per share. Concurrent with the convertible senior notes offering, the Company used $40.6 million of the net proceeds to enter into capped call transactions. The cap price of the capped call transactions is initially $114.02 per share, which represents a premium of 100% over the last reported sale price of the Company’s common stock on August 7, 2024. The capped call transactions are expected generally to reduce the potential dilution to ANI’s common stock upon any conversion of the notes up to the cap price of $114.02.

To fund the Alimera Acquisition, the Company entered into a new senior secured credit agreement consisting of a $325.0 million delayed draw term loan facility and $75.0 revolving credit facility on August 13, 2024. On September 16, 2024 the Company drew the full $325.0 million term loan; the $75.0 million revolving credit facility remains available to borrow. Refer to the Liquidity and Capital Resources section below for further information related to the debt agreements.

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 third 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)

49

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:

50

RESULTS OF OPERATIONS

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

Net Revenues

(in thousands)

We derive substantially all of our revenues from sales of rare disease, generic, 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 September 30, 2024 were $148.3 million compared to $131.8 million for the same period in 2023, an increase of 12.5%, primarily as a result of the following factors:

• Net revenues of rare disease pharmaceutical products, which include Cortrophin Gel and a partial month contribution from ILUVIEN and YUTIQ, were $56.4 million during the three months ended September 30, 2024, an increase of $26.7 million from $29.7 million for the same period in 2023. This increase was driven by increased volume in this third year of launch of Cortrophin Gel (product was launched in late January 2022), and a partial month of sales from ILUVIEN and YUTIQ, as a result of the acquisition of Alimera on September 16, 2024.
• Net revenues for generic pharmaceutical products were $78.2 million during the three months ended September 30, 2024, an increase of 10.8% compared to $70.6 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 Baclofen, Candesartan, Colestipol, Estradiol, Fludrocortisone, L-Glutamine, Pentoxifylline, and various other products tempered by a decrease in revenues of Thyroid, Dapsone, Famotidine, and MAS-ER, among others.
• Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $13.7 million during the three months ended September 30, 2024, a decrease of 56.6% compared to $31.5 million for the same period in 2023, driven by a net decrease in volume. During the three months ended September 30, 2023, we benefited from supplying incremental volume in markets that were experiencing supply chain disruptions for competing products.

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, royalties payable related to profit-sharing arrangements, and amortization of the inventory fair value step-up recognized in connection with the acquisition of Alimera. 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 September 30, 2024, cost of sales increased to $63.1 million from $48.1 million for the same period in 2023, an increase of $15.0 million, or 31.1%. The increase is primarily due to significant net growth in sales volumes of pharmaceutical products, significant growth of royalty bearing products, including Cortrophin Gel, and the amortization of the inventory step-up related to the acquisition of Alimera of approximately $3.2 million.

Cost of sales, as a percentage of net revenues, increased to 42.5% from 36.5% for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a shift in product mix year over year, increase in sales of products that bear a royalty payable, and the amortization of Alimera inventory step-up.

During the three months ended September 30, 2024 and September 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 September 30, 2024, other operating expenses, net increased to $105.8 million from $65.8 million for the same period in 2023, an increase of $40.0 million, or 60.8%, primarily as a result of the following factors:

• Research and development expenses decreased from $11.1 million to $10.1 million, a nominal decrease of approximately $1.0 million or 8.9% when comparing the three months ended September 30, 2024 to the same period in 2023.
• Selling, general, and administrative expenses increased from $42.0 million to $79.1 million, an increase of $37.1 million, or 88.2%, due to increased employment related costs, investment in Rare Disease sales and marketing infrastructure and activities, legal expenses, transaction and integration expenses incurred in connection with the acquisition of Alimera of approximately $10 million, severance expense of approximately $5.3 million and the settlement of all outstanding equity awards held by Alimera employees of approximately $9.2 million, and an overall increase in activities to support revenue growth.
• Depreciation and amortization expense was $15.7 million for the three months ended September 30, 2024, compared to $15.2 million for the same period in 2023.
• We recognized a loss of $0.8 million and gain of $2.6 million in the three months ended September 30, 2024 and 2023, respectively, for the contingent consideration fair value adjustment. The change in the fair value adjustment during the three months ended September 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 decrease in discount rates. Additionally, the fair value measurement adjustment in the three months ended September 30, 2024 is related to only the third milestone, whereas the fair value adjustment at September 30, 2023 related to all three milestones.

Other Expense, net

(in thousands)

For the three months ended September 30, 2024, we recognized total other expense of $11.0 million as compared to total other expense of $6.4 million for the same period in 2023, an increase of $4.5 million.

• We recorded an unrealized gain on our investment in equity securities held in CG Oncology of approximately $1.4 million is due to the mark to market to fair value of equity securities as of the balance sheet date. There was no comparable gain on investment in the three months ended September 30, 2023.
• Interest expense, net for the three months ended September 30, 2024 consists primarily of interest expense on borrowings under our Term Facility of approximately $4.0 million and amortization of deferred debt issuance costs of approximately $0.3 million, and interest expense on the New Credit Facility of approximately $1.1 million and Convertible Senior Notes of approximately $1.0 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 $1.7 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 average cash balances during the current period, interest income realized on our interest rate swaps, and the inclusion of approximately only one and a half months of Term Facility interest in the current three months ended September 30, 2024 as compared to three full months in September 30, 2023 due to the timing of the extinguishment of the Term Facility (August 13, 2024) and the draw down of the New Credit Facility (September 16, 2024).
• Other expense, net, increased to approximately $2.5 million, primarily due to the fees paid to JPMorgan Chase Bank, N.A. and Blackstone Credit & Insurance of $2.8 million pursuant to the terms of the debt commitment letter, dated June 21, 2024, entered into in connection with the acquisition of Alimera, offset by other income.
• We recorded a loss on debt extinguishment of approximately $7.5 million, comprised of the write-off unamortized deferred financing fees related to the Credit Facility. On August 13, 2024, the Company entered into the 2.25% Convertible Senior Notes due 2029 (as described in Note 7 “2.25% Convertible Senior Notes” to the Notes to Condensed Consolidated Financial Statements). The proceeds of the Convertible Senior Notes were used to repay the Truist Credit Facility in its entirety, approximately $294.0 million, comprised of $292.5 million of unpaid principal, $1.2 million in accrued and unpaid interest, and $0.3 million of legal fees. There was no comparable transaction in the three months ended September 30, 2023.

Income Tax (Benefit) Expense

(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 September 30, 2024, we recognized an income tax benefit of approximately $7.3 million. The Company’s effective tax rate was 23.3% after discrete items for the three months ended September 30, 2024. The effective tax rate differed from the federal statutory rate of 21% primarily due to state taxes, treatment of discrete items (including stock based compensation), and non-deductible expenses related to the completed acquisition of Alimera which were treated as a discrete item during the quarter which affects the estimated tax rate.

For the three months ended September 30, 2023, we recognized an income tax expense of $1.6 million. The income tax expense resulted from applying an estimated annual worldwide effective tax rate of 13.6% to pre-tax consolidated income of $11.5 million reported during the period. 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.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Net Revenues

(in thousands)

Net revenues for the nine months ended September 30, 2024 were $423.8 million compared to $355.2 million for the same period in 2023, an increase of 19.3%, primarily as a result of the following factors:

• Net revenues of rare disease pharmaceutical products, which include Cortrophin Gel and a partial month of contribution from ILUVIEN and YUTIQ, were $142.6 million during the nine months ended September 30, 2024, an increase of $72.2 million from $70.4 million for the same period in 2023. This increase was driven by increased volume in this third year of launch of Cortrophin Gel (product was launched in late January 2022), and a partial month of sales from ILUVIEN and YUTIQ, as a result of the acquisition of Alimera on September 16, 2024.
• Net revenues for generic pharmaceutical products were $222.4 million during the nine months ended September 30, 2024, an increase of 12.5% compared to $197.6 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 Baclofen, Candesartan, Colestipol, Estradiol,Lacosamide, Nitrofurantoin, Pentoxifylline, Pirfenidone, Prednisone, Vancomycin, and various other products tempered by a decrease in revenues of Dapsone, Famotidine, Meloxicam, Nebivolol, Paliperidone, Prochlorperazine, Thyroid, and Vancomycin OS among others.
• Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $58.8 million during the nine months ended September 30, 2024, a decrease of 32.5% compared to $87.2 million for the same period in 2023, driven by a net decrease in volume. During portions of the prior year and 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 and third quarter of 2024.

Cost of Sales (Excluding Depreciation and Amortization)

(in thousands)

For the nine months ended September 30, 2024, cost of sales increased to $169.9 million from $128.1 million for the same period in 2023, an increase of $41.8 million, or 32.7%. The increase is primarily due to significant net growth in sales volumes of pharmaceutical products, significant growth of royalty bearing products, including Cortrophin Gel, and the amortization of the inventory step-up related to the acquisition of Alimera of approximately $3.2 million.

Cost of sales, as a percentage of net revenues, increased to 40.1% from 36.1% for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to a shift in product mix year over year, and increase in sales of products that bear a royalty payable.

During the nine months ended September 30, 2024, approximately 17% of our raw material purchases were from one supplier. During the nine months ended September 30, 2023, no single vendor represented more than 10% of our raw material inventory purchases.

Other Operating Expenses, net

(in thousands)

For the nine months ended September 30, 2024, other operating expenses, net increased to $248.9 million from $186.8 million for the same period in 2023, an increase of $62.1 million, or 33.2%, primarily as a result of the following factors:

• Research and development expenses increased from $24.4 million to $27.9 million, an increase of $3.5 million or 14.4%, primarily due to a higher level of activity associated with ongoing and new projects in the nine months ended September 30, 2024.
• Selling, general, and administrative expenses increased from $117.2 million to $179.9 million, an increase of $62.7 million, or 53.5%, due to increased employment related costs, investment in Rare Disease sales and marketing infrastructure and activities, legal expenses, transaction and integration expenses related to the acquisition of Alimera of approximately $13.5 million, severance expense of approximately $5.3 million and the settlement of all outstanding equity awards held by Alimera employees of approximately $9.2 million, and an overall increase in activities to support revenue growth.
• Depreciation and amortization expense was $45.1 million for the nine months ended September 30, 2024, compared to $44.6 million for the same period in 2023.
• We recognized a loss of $1.3 million and a gain of $0.6 million in the nine months ended September 30, 2024 and 2023, respectively, for the contingent consideration fair value adjustment. The change in the fair value adjustment during the nine months ended September 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 nine months ended September 30, 2024 is related to only the third milestone, whereas the fair value adjustment at September 30, 2023 related to all three milestones.
• We recognized restructuring activities expenses of $1.1 million in the nine months ended September 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 nine months ended September 30, 2024.
• We recognized a gain related to the sale of the former Oakville, Ontario manufacturing site of approximately $5.3 million during the nine months ended September 30, 2024. There was no comparable sale in the nine months ended September 30, 2023.

Other Expense, net

(in thousands)

For the nine months ended September 30, 2024, we recognized total other expense, net of $13.4 million as compared to total other expense of $21.3 million for the same period in 2023, a decrease of $7.9 million.

• The unrealized gain on investment in equity securities of approximately $8.3 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 nine months ended September 30, 2023.
• Interest expense, net for the nine months ended September 30, 2024 consists primarily of interest expense on borrowings under our Term Facility of approximately $21.0 million and amortization of deferred debt issuance costs of approximately $1.5 million, and interest expense on the New Credit Facility of approximately $1.1 million and Convertible Senior Notes of approximately $1.0 million, offset by dividend income earned on our money market funds and interest earned on our cash balances of approximately $8.0 million, the effects of the interest rate swap of approximately $4.9 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 average cash balances during the current period, interest income realized on our interest rate swaps, and the inclusion of approximately seven and a half months of Term Facility interest in the current nine months ended September 30, 2024 as compared to nine full months in September 30, 2023 due to the timing of the extinguishment of the Term Facility (August 13, 2024) and the draw down of the New Credit Facility (September 16, 2024).
• Other expense, net, increased to approximately $2.7 million, primarily due to the fees paid to JPMorgan Chase Bank, N.A. and Blackstone Credit & Insurance of $2.8 million pursuant to the terms of the debt commitment letter, dated June 21, 2024, entered into in connection with the acquisition of Alimera, offset by other income.
• We recorded a loss on debt extinguishment of approximately $7.5 million, comprised of the write-off unamortized deferred financing fees related to the Credit Facility. On August 13, 2024, the Company entered into the 2.25% Convertible Senior Notes due 2029 (as described in Note 7 “2.25% Convertible Senior Notes” to the Notes to Condensed Consolidated Financial Statements). The proceeds of the Convertible Senior Notes were used to repay the infrastructure Credit Facility in its entirety, approximately $294.0 million, comprised of $292.5 million of unpaid principal, $1.2 million in accrued and unpaid interest, and $0.3 million of legal fees. There was no comparable transaction in the nine months ended September 30, 2023.

Income Tax (Benefit) Expense

(in thousands)

For the nine months ended September 30, 2024, we recognized an income tax benefit of $0.2 million. The Company’s effective tax rate was 2.4% after discrete items for the nine months ended September 30, 2024. The effective tax rate differed from the federal statutory rate of 21% primarily due to state taxes, treatment of discrete items (including 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 the completed acquisition of Alimera.

For the nine months ended September 30, 2023, we recognized an income tax expense of $1.3 million. The income tax expense resulted from applying an estimated annual worldwide effective tax rate of 6.9% to pre-tax consolidated income of $18.9 million reported during the period. 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.

LIQUIDITY AND CAPITAL RESOURCES

Term Loan A

On August 13, 2024, the Company, as lead borrower, entered into a delayed-draw credit agreement (the “New Credit Agreement”) with JPMorgan Chase Bank, N.A., and other financial institutions (together, the “Lenders”), which provides for aggregate principal commitments consisting of (i) a senior secured term loan facility in an aggregate principal amount of $325.0 million (the “Term Loan A” or “TLA”), and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $75.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “TLA Revolver” and together with the TLA, the “New Credit Facility”).

The facilities are secured by a lien on substantially all of the personal property owned by the Company and its material wholly-owned domestic subsidiaries and is guaranteed by all of the Company’s material wholly-owned domestic subsidiaries. The New Credit Facility matures on the date that is five years following the closing date of the New Credit Agreement, provided that if any of the Notes (defined below) remain outstanding on the date that is 91 days prior to the maturity date of the Notes, the New Credit Facility will mature on such date unless certain terms are met.

At the Company’s option, loans under the New Credit Facility accrue interest at a per annum rate equal to (i) the alternate base rate or (ii) the adjusted term SOFR rate for an interest period of one, three or six months, plus a spread depending on the Company’s first lien net leverage ratio, between 1.25% and 2.00% in the case of ABR loans and between 2.25% and 3.00% in the case of adjusted term SOFR rate loans. A commitment fee accrues on the unutilized commitments under the TLA Revolver and, from and after the date that is two months after the closing date of the New Credit Agreement, the TLA at a per annum rate equal between 0.25% and 0.40% depending on the Company’s first lien net leverage ratio.

The New Credit Agreement contains usual and customary representations and warranties of the parties for credit facilities of this type, subject to customary exceptions and materiality standards. In addition, the Company is required to maintain a first lien net leverage ratio not to exceed 3.00:1.00 (provided, that the lead borrower under the New Credit Agreement may elect to increase the ratio to 3.50:1.00 for four consecutive fiscal quarters following the consummation of a material acquisition) and a minimum interest coverage ratio of 3.00 to 1.00.

The New Credit Agreement also contains certain customary covenants including but not limited to restrictions on the amount of debt the Company and its restricted subsidiaries may incur and payments the Company and its restricted subsidiaries may make, and events of default, as well as, in the event of an occurrence of an event of default, customary remedies for the Lenders, including the acceleration of any amounts outstanding under the New Credit Agreement.

On September 16, 2024 (the “Closing Date”) the Company drew the full $325.0 million of Term Loan A principal on September 16, 2024, with proceeds used to finance the acquisition of Alimera, including fees, costs and expenses incurred in connection with the transaction. As of September 30, 2024, the TLA Revolver remains undrawn, and $75.0 million is available for borrowing, subject to certain conditions. The TLA and the TLA Revolver mature on September 16, 2029. The New Credit Facility contains certain contingent acceleration clauses, none of which have been triggered as of September 30, 2024. The cash interest rate and effective rate under the Term Loan A was approximately 7.95% at September 30, 2024.

2.25% Convertible Senior Notes Due 2029

On August 07, 2024, the Company entered into a purchase agreement (the “Purchase Agreement”) with the initial purchasers (the “Initial Purchasers”) relating to the issuance of the $275.0 million aggregate principal amount of the Company's Convertible Senior Notes due 2029 (the “Notes”). Pursuant to the terms of the Purchase Agreement, the Company granted the Initial Purchasers an option to purchase up to an additional $41.25 million aggregate principal amount of Notes (the “Option”) for settlement at any time during the thirteen days beginning on, and including, August 7, 2024, which Option was excercised in full on August 8, 2024.

On August 13, 2024 (the “Closing Date” or “Issue Date”), the Company completed an offering of $316.25 million aggregate principal amount of Notes. The Notes were issued pursuant to an indenture (the “Indenture”) dated as of Augsut 13, 2024 between the Company and U.S. Bank Trust Company, National Association (“Trustee”). The Notes are due September 1, 2029, unless earlier repurchased, redeemed, or converted. The Notes will accrue interest at a rate of 2.25% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2025. After deducting the initial purchasers’ discounts and commissions of approximately $9.5 million, but before deducting the Company’s offering expenses, the net proceeds to the Company from the offering of the Notes was approximately $306.8 million. After payment of the cost of entering into the Capped Call Transactions (as defined below), the Company used the remainder of the net proceeds from the Notes offering, together with cash on hand, to repay the Company’s existing senior secured credit agreement, dated as of November 19, 2021, by and among the Company, certain of the Company’s subsidiaries, as guarantors, Truist Bank, as administrative agent and other parties thereto, as amended, supplemented or otherwise modified from time to time (as amended, the “Credit Agreement”).

The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.

Prior to the close of business on the business day immediately preceding June 1, 2029, holders of the Notes will have the right to convert their Notes only upon the occurrence of certain events as set forth in the Indenture. All or any portion of the Notes may be converted prior to June 1, 2029 at the holders’ option upon the occurrence of any of the following: (i) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2024, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price of the Notes for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (ii) during the five consecutive business days immediately after any ten consecutive trading day period (such ten consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate of the Notes on such trading day; (iii) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the Indenture; or (iv) if the Company calls such Notes for redemption.

On or after June 1, 2029 until the close of business on the second scheduled trading day immediately before the maturity date of the Notes, holders may convert all or any portion of their Notes at any time at their election. The initial conversion rate for the Notes is 13.4929 shares of the Company’s common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $74.11 per share of the Company’s common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for holders that convert their Notes in connection with such Make-Whole Fundamental Change, as described in the Indenture.

Upon conversion of the Notes, the Company will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company’s election, in respect of the remainder, if any, of the Company's conversion obligation.

Capped Call Transactions

In connection with the offering of Notes, on August 7, 2024 and August 8, 2024, the Company entered into capped call transactions with certain financial institutions (“Capped Calls”). The Capped Calls each have an initial strike price of $114.02, which represents a premium of 100% over the last reported sale price of the Company’s common stock on August 7, 2024. The Company used approximately $40.6 million of the net proceeds from the offering of the Notes to pay premiums on the Capped Calls.

The Capped Calls are expected to generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reductions and/or offset subject to a cap, based on the cap price of the Capped Calls. The Capped Calls cover, subject to anti-dilution adjustments, approximately 4.3 million shares of the Company's common stock.

The Capped Calls will expire upon the maturity of the Notes. The Capped Calls are separate transactions entered into by the Company with the financial institution counterparties thereto, the Capped Calls are not part of the terms of the Notes and the Capped Calls do not change the holders’ rights under the Notes. The Capped Calls do not meet the criteria for separate accounting as a derivative as they meet the criteria for equity classification, and the capped call transaction premiums are recorded as a reduction to Additional Paid-In Capital within Shareholders’ Equity, net of deferred income taxes.

Debt Extinguishment

On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provided 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 was secured by substantially all our assets and the assets of our domestic subsidiaries. On August 13, 2024, the Company entered into the 2.25% Convertible Senior Notes due 2029. The proceeds of the Convertible Senior Notes were used to repay the Credit Facility in its entirety, approximately $294.0 million, comprised of $292.5 million of unpaid principal, $1.2 million in accrued and unpaid interest, and $0.3 million of legal fees. In connection with the issuance of the Convertible Senior Notes, the Company recorded a loss on debt extinguishment in the unaudited interim consolidated statement of operations for the three and nine months ended September 30, 2024, amounting to approximately $7.5 million, comprised of the write-off unamortized deferred financing fees related to the Credit Facility as of August 13, 2024.

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.

Accrued Licensor Payments

On May 17, 2023, Alimera entered into a product rights agreement with EyePoint Parent which granted Alimera an exclusive and sublicensable right and license under EyePoint Parent’s and its affiliates’ interest in certain of EyePoint Parent’s and its affiliates’ intellectual property to develop, manufacture, sell, commercialize and otherwise exploit certain products, including YUTIQ, for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa, where the Company already has such rights pursuant to the New Collaboration Agreement, and except for China, Hong Kong, Macau, Taiwan, Brunei, Burma (Myanmar), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam, where Ocumension holds a license from EyePoint Parent. Pursuant to the agreement, Alimera paid EyePoint Parent an upfront payment of $75.0 million and has also made three quarterly guaranteed payments to EyePoint Parent totaling $5.6 million during 2024, with one remaining payment of $1.9 due at December 31, 2024.

The Company will also pay royalties to EyePoint Parent from 2025 to 2028 at a percentage of mid-to-low double digits of annual U.S. net sales of certain products (including YUTIQ and ILUVIEN) in excess of certain thresholds, beginning at $70.0 million in 2025, increasing annually thereafter. Upon making the quarterly payments in the aggregate amount of $7.5 million in 2024, the licenses and rights granted to the Company will automatically become perpetual and irrevocable.

We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, our New Credit Facility, under which $75.0 million remains available for borrowing as of September 30, 2024, and the completed offering of $316.3 million of Convertible Senior Notes, 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)

59

Net Cash Provided by Operations

Net cash provided by operating activities was $48.2 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of $74.2 million during the same period in 2023, a decrease of $26.1 million. The decrease in cash provided by operating activities resulted from an increase in non-cash items such as stock-based compensation, depreciation and amortization, amortization of inventory step up, 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 Used in Investing Activities

Net cash used in by investing activities for the nine months ended September 30, 2024 was $394.0 million, principally due to the acquisition of Alimera of approximately $393.1 million and capital expenditures of approximately $13.8 million, offset by proceeds received from the sale of the Oakville, Ontario manufacturing site in March 2024 of approximately $13.5 million. Net cash used in investing activities for the nine months ended September 30, 2023 was $13.7 million, principally due to acquisitions of ANDAs from the estates of Akorn Holding Company and Slayback Pharma Limited Liability Company totaling for $7.1 million and $6.6 million of capital expenditures.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2024 was $269.9 million, principally resulting from proceeds from the New Credit Facility of $325.0 million, proceeds from the offering of the Convertible Senior Notes of $316.3 million, offset by the repayment of the Truist Credit Facility of $292.5 million, purchase of the capped calls of $40.6 million, payments of debt issuance costs related to the Convertible Senior Notes and New Credit Facility of $15.4 million, $12.5 million paid to the Company Members of Novitium, and $10.6 million of treasury stock purchase, and other items. Net cash provided by financing activities for the nine months ended September 30, 2023 was $79.4 million, principally due to $80.6 million in proceeds received from the May 2023 public offering and $7.0 million from proceeds from stock option exercises and ESPP purchases, offset by purchases of $4.8 million of treasury stock related to restricted stock vests, $2.3 million maturity payments on the Term Facility, and $1.2 million convertible preferred stock dividends paid.

CRITICAL ACCOUNTING ESTIMATES

Except for updates to accounting policies as a result of the acquisition of Alimera, as described in Note 1, Description of Business and Summary of Significant Accounting Policies, of the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q to the accompanying consolidated financial statements, our critical accounting policies and estimates have not changed since December 31, 2023. Our critical accounting estimates were 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.

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. In connection with our recent acquisition of Alimera, we have materially increased our international operations, exposing us to increased risk of foreign currency exchange fluctuations as compared to prior periods. In particular, we are now exposed to foreign currency fluctuations in British Pounds and Euros in addition to the Indian rupee. There have been no other 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 September 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

On September 16, 2024, we completed the acquisition of Alimera. We are currently in the process of evaluating and integrating the acquired operations, processes, and internal controls. See Note 3 of the unaudited interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on this acquisition. There were no other changes in our internal control over financial reporting, during the quarter ended September 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 Quarterly Report on Form 10-Q, please carefully consider the factors described under the heading “Risk Factors” in our 2023 Form 10-K in Part I, Item 1A and in our Quarterly Report on Form 10-Q for the period

ended June 30, 2024 in Part II, 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, including as related to the 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 our Business

Several of the products we have acquired cannot be manufactured in our facilities and are manufactured, packaged and/or distributed by third parties, which we cannot control. If we are unable to secure or maintain qualified contract manufacturers for those products, a contract manufacturer or distributor fails to comply with federal, state, and local laws and regulations, or third-party manufacturers or distributors sustain delays in production and distribution of our products, our business, financial position, and operating results could be materially, adversely affected.

We have acquired, and may continue to acquire, a variety of products that we seek to commercialize. Some of these products, including injectables, softgel capsules, and Purified Cortrophin Gel, as well as the products we acquired following the acquisition of Alimera, are products that we cannot currently manufacture in our facilities. As a result, we may seek partners to contract manufacture the products on our behalf, and we rely on third parties to manufacture, package and/or distribute many of our products. Like our Company, these companies must comply with cGMPs and other federal, state, and local laws and regulations regarding pharmaceutical manufacturing. Noncompliance by those companies may result in warning letters, fines, product recalls, and partial or total suspension of production and distribution. If we are unable to find qualified contract manufacturers or distributors or if a contract manufacturer or distributor fails to comply with federal, state, and local laws and regulations, we may be unable to commercialize these products, which could have a material adverse effect on our business, financial position, and operating results, including an impairment of the acquired product.

We expect our reliance on third party manufacturers to continue to increase in the future as we receive approvals for new products to be manufactured through our collaborative arrangements, and as we seek additional growth opportunities outside of the capabilities of our current manufacturing facilities, including following the acquisition of Alimera. If we are unable to secure third-party manufacturers for these products on commercially acceptable terms, we may not be able to market and distribute such products at a profit.

In addition, manufacturers and distributors of our products may sometimes encounter difficulties in production and distribution. These problems include failure to meet target production costs and yields, failure to meet product release specifications, including stability of the product, quality assurance system failures, operator error and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Adverse weather conditions and natural disasters may also affect our manufacturers’ and distributors’ supply chains, which could negatively impact our ability to source materials and components to make our products and, in more severe cases, such as hurricanes, earthquakes, floods, droughts, tornadoes or blizzards, eliminate the availability, or significantly increase the cost, of the components to make our products, sometimes for prolonged periods of time. The response of federal, state and local governmental bodies and agencies to climate change through regulations, mandates, reporting and disclosure requirements, taxes or levies could materially increase our or our manufacturers’ cost to operate or obtain product components at a reasonable price, resulting in a material adverse effect on our financial results.

Any of these situations could materially and adversely harm our business and financial condition. We cannot assure you that any product quality issues relating to the manufacture and/or distribution of our product candidate or any future product candidates will not occur in the future. Any delays or difficulties with third-party manufacturers and/or distributors could adversely affect the marketing and distribution of these products, or future products, which could have a material adverse effect on our business, financial position, and operating results.

We may fail to realize the benefits expected from our acquisition of Alimera and 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.

On September 16, 2024, we completed our previously announced acquisition (the “Merger”) of Alimera Sciences, Inc., a Delaware corporation (“Alimera”) pursuant to the terms of the Agreement and Plan of Merger, dated as of June 21, 2024 (the “Merger Agreement”), by and among the Company, Alimera and ANIP Merger Sub INC., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”). The anticipated benefits we expect from this acquisition include, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company and operating efficiencies and these benefits are, necessarily, based on projections and assumptions about the combined businesses of our Company and Alimera, which may not materialize as expected or which may prove to be inaccurate. The value of our common stock could be adversely affected if we are unable to realize the anticipated benefits from the Merger on a timely basis or at all. Achieving the benefits of the Merger will depend, in part, on our ability to continue to integrate the business, operations and products of Alimera successfully and efficiently with our business.

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 timely 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 has materially increased 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, 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;
• unanticipated write-offs or charges. In connection with the Merger we recorded goodwill in the fair value amount of the acquisition. 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;
• our expansion into international operations as a result of the Merger (as discussed below);
• incurrence of significant costs in connection with consummating the Merger and integrating the operations of Alimera into our business;
• the potential for securities class action lawsuits and derivative lawsuits that may be brought as a result of the Merger, including costs associated with defending such lawsuits; and
• our failure to identify or accurately assess the magnitude of certain liabilities we assumed in the Merger could result in unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other known and unknown liabilities which could result in adverse effects on our business, operating results or financial condition.

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.

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

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. These fees and costs have been, and will continue to be for some time, substantial, and additional unanticipated costs may be incurred in our integration of Alimera. 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.

We have incurred substantial debt in order to satisfy our obligations in connection with the Merger.

We financed the cash portion of the Merger with borrowings of $325.0 million under that certain senior secured credit agreement entered into on August 13, 2024 with JPMorgan Chase Bank, N.A. as administrative agent and other financial institutions. In order to service the debt we incurred under the Merger, we 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.

In connection with the Merger, we recorded goodwill 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 the Merger, we recorded 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, if goodwill recorded in connection with the Merger becomes impaired, our earnings could be significantly and adversely affected.

The Merger may become the target of derivative lawsuits that could result in substantial costs in connection with the Merger.

We may incur significant, non-recurring costs in connection with consummating the Merger and integrating the operations of Alimera into our business operations. Derivative lawsuits are often brought against public companies that have entered into merger agreements and have consummated acquisitions. The outcome of any litigation is uncertain, but regardless of the outcome of any such lawsuits, we may incur significant fees and expenses relating to legal services (including any costs that would be incurred in defending against any potential derivative lawsuits in connection with the Merger if any such proceedings are brought), accounting and other fees and costs, associated with consummating the Merger.

If we fail to successfully manage our international operations, our business, operating results and financial condition could suffer.

Alimera had, and we have acquired, direct operations and are marketing 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 of the closing of the Merger, the percentage of our revenues generated outside of the United States increased materially, and our new international operations require significant management attention and financial resources.

There is a high level of regulation in all markets where the products we acquired from Alimera have been 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 relied on distributors in many countries to provide adequate levels of experience and expertise on its behalf, and we will now rely on those distributors. We 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, within the Middle East, 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 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 exposes 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. 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.

The Merger magnifies the operational risks that we face.

Alimera was subject to many of the same operational risks as our business prior to the Merger, which are described in our 2023 Form 10-K and in our Quarterly Report on Form 10-Q for the period ended June 30, 2024. Given the substantial size of Alimera and associated complexities, many of the risk factors that we faced prior to the Merger will only become more magnified and substantial and the expanded business will only pose additional challenges for management, including those that relate to management and monitoring of new operations.

As a result of the consummation of the Merger, we 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 consummation of the Merger, we now have certain additional requirements that we 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 historically has reimbursement or by a new price in a country where we obtain reimbursement approval in the future.

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 also need to maintain current 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 did not and we do not currently have rights in China and certain other parts of Asia. As a result of the Merger, in order to market our products in foreign jurisdictions, we are 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, 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.

As a result of the consummation 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 did not have in-house manufacturing capability and depended entirely on single source third-party manufacturers for the manufacture of its products; following the consummation of the Merger, we rely on these third-party manufacturers for the manufacture of the products we acquired from Alimera, 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 relied, and we now rely, 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 relied, and we now rely, 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. 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 our ability to fulfill demand for YUTIQ could be materially impaired. Additionally, we may experience lengthy delays if we need to change a third-party supplier or manufacturer, including for YUTIQ, which could have a material impact on business and results of operations. Further, suppliers and manufacturers for the products we acquired from Alimera rely on additional third parties for the manufacture of component parts. Any inability of these 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 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.