Third quarter 2009 financial results announced by Akorn

Nov 10 2009

Akorn, Inc. (NASDAQ: AKRX) a specialty pharmaceutical company, today reported financial results for the third quarter ended September 30, 2009.

Consolidated revenue for the third quarter 2009 was $19.4 million, versus $31.9 million in the third quarter 2008 representing a decrease of approximately 39%. The decrease was due to lower sales of tetanus-diphtheria (“Td”) and flu vaccines and overall lower sales to wholesalers as part of an effort to reduce wholesaler inventory levels. Ophthalmic segment revenue decreased by $0.3 million or 6%, primarily due to targeted wholesaler reductions in stocking levels. Hospital drugs and injectables segment revenue decreased $3.1 million or 49%, reflecting the targeted wholesaler reduction in stocking levels. Vaccine revenue for this quarter decreased by $8.5 million versus the prior year period primarily due to stronger third quarter 2008 sales resulting from the introduction of a single dose vial Td vaccine and a flu vaccine supply shortage this quarter. As previously disclosed, the Company does not intend to distribute flu vaccine after the 2009 flu season. Contract manufacturing revenue decreased by $0.6 million or 25%, mainly due to decreased order volumes on ophthalmic contract products.

Consolidated gross profit was $2.7 million or 13.9% of revenue for the third quarter of 2009 as compared to a gross profit of $9.9 million or 31.1% of revenue in the same period a year ago. The decrease in third quarter 2009 gross profit compared to the prior year period is primarily due to lower vaccine sales and an increase in Td vaccine unit cost. Also contributing to the decrease were the lower hospital drug and injectable and ophthalmic sales and a corresponding negative impact on manufacturing capacity utilization.

During the third quarter of 2009, the Company recognized equity earnings totaling $0.5 million from its investment in the Akorn-Strides, LLC joint venture and marketing fee revenue of $0.3 million for its commission on sales of joint venture products. The joint venture recognized net sales of approximately $3.8 million during third quarter 2009. Joint venture sales increased $1.9 million over the second quarter 2009 as a result of a full quarter of sales of injectable Vancomycin, which launched in June 2009.

The Company’s net loss was approximately $5.1 million in the third quarter 2009 compared to a net profit of $2.4 million in the third quarter 2008. This reflects the revenue and gross profit decreases and a $1.1 million charge for the change in the fair value of warrants issued in conjunction with the Company’s renegotiated revolving line of credit and subordinated debt, offset by a $1.0 million decrease in selling, general and administrative expense compared to the prior year period resulting from targeted cost reductions. Adjusted EBITDA (a non-GAAP financial measure defined below) for third quarter 2009 was a negative $1.6 million compared with a positive $4.4 million Adjusted EBITDA in the prior year period.

Third quarter cash flow from operating activities was a use of $0.7 million. The revolving line of credit ended the quarter with a balance of $7.5 million compared to $5.5 million on June 30, 2009, while the cash balance ended at $2.0 million on September 30, 2009 compared with $1.0 million on June 30, 2009.

Akorn also announces the launch of the generic version of Acular® (Ketorolac Tromethamine Ophthalmic), a drug with estimated brand sales of $119 million in 2008 according to IMS data. In addition, the company launched Hydralazine Hydrochloride, an existing generic, with estimated sales of $23 million in 2008 according to IMS data.

Raj Rai, Interim Chief Executive Officer said, “We are very pleased with the progress we have made this quarter. While we are on track to achieve the operational objectives we initiated in the second quarter, we are transitioning the company to generate higher margins from the sale of our core ophthalmic and hospital products and positive cash flow in the fourth quarter.”

Rai further stated, “We are pleased to announce the launch of two new generic products, Ketorolac Tromethamine and Hydralazine HCL. These products, in addition to the products launched in the third quarter, will serve as building blocks to the future growth of the company.”