Akorn second quarter revenue grows 59% to $32.1 million

Aug 2 2011

Akorn, Inc. (NASDAQ: AKRX), a niche specialty pharmaceutical company, today reported financial results for the second quarter of 2011. The Company also separately announced that it has entered into an agreement to acquire a minority ownership in Westborough, MA, based Aciex Therapeutics Inc., an ophthalmic drug development company with a focus on developing novel therapeutics to treat front-of-eye diseases. Aciex's pipeline consists of three clinical stage assets and four pre-IND stage assets. In addition, Akorn signed a global licensing and manufacturing agreement for one of Aciex's lead products.

Second Quarter Highlights

• Revenue growth of 59% over the comparable prior year quarter, or 41% excluding the impact of AVR.
• Eighth consecutive quarter of core revenue and adjusted EBITDA growth. Akorn's core business consists of the ophthalmic, hospital drugs & injectables and contract services segments.
• Raised $120 million in a convertible debt offering.
• Generated $6.0 million in operating cash flow and ended quarter with $134.5 million in cash and cash equivalents.
• Acquired AVR, a leader in the over-the-counter dry eye market.
• Acquired three products with a combined brand/generic annual market size of $20 million.
• Filed four new internally developed ANDAs with a combined annual market size of $190 million.
• Received FDA approval for injectable Levofloxacin 25mg/mL single-use vials.

Consolidated revenue for the second quarter of 2011 was $32.1 million, up 59% over the comparable prior year quarter consolidated revenue of $20.2 million. The increase in revenue was the result of partial quarter AVR sales totaling $3.7 million, the continued growth of products launched in 2010, strong organic growth in established injectable and ophthalmic products and an increase in seasonal allergy ophthalmic sales.

Consolidated gross margin for the second quarter of 2011 was 56% compared to 49% in the comparable prior year period. Cost of sales in the second quarter 2011 included approximately $0.7 million in non-cash fair value adjustments for acquired AVR inventory. Sustained improvements in gross margin are the result of favorable product mix, selected price increases, higher utilization of plant capacities and increased sales of higher margin products introduced in 2010.

Second quarter 2011 adjusted EBITDA was $10.6 million compared with $4.2 million in the comparable prior year quarter. Net income for the second quarter of 2011 was $17.9 million, and earnings per share were $0.17 per diluted share compared to a net loss of $9.4 million and loss per share of $0.10 in the comparable prior year quarter. Second quarter 2011 included $13.4 million of gain on Akorn-Strides LLC's sale of its remaining abbreviated new drug approvals to Pfizer. Akorn-Strides LLC also ceased operations during the quarter. Second quarter 2011 results also included the acceleration of $1.4 million in amortization expense for deferred financing costs related to the early termination of the Company's $10.0 million revolving credit agreement with EJ Funds LP as well as $0.6 million in incremental interest expense from the convertible debt issued on June 1.

Raj Rai, Chief Executive Officer commented, "We had another great quarter as both our ophthalmic and specialty injectable product lines continue to show sequential growth. In addition, we are excited about the recent acquisition of Advanced Vision Research (AVR) which is adding further to the growth momentum in our company. Given the strength of our business, we are increasing our guidance for the year and plan to increase our R&D infrastructure to develop 10 to 15 additional products annually."

2011 Revised Outlook

• The Company projects 2011 revenue in the range of $124 million to $126 million
• The Company's 2011 gross margin is projected to be approximately 55%.
• The Company projects 2011 adjusted EBITDA of approximately $37 million to $39 million.
• In 2011, the Company expects to spend approximately $15 million to $20 million in capital expenditures to increase plant capacities and improve efficiencies.
• The Company is projecting 2011 R&D expenses of approximately $10 million to $11 million.
• The Company's 2011 outlook excludes the impact of any new approvals after August 1, 2011.

Akorn's R&D Pipeline

The Company has 22 ANDAs filed with the FDA with a combined annual market size of approximately $2.8 billion. The Company has completed development work on 13 additional products with a combined annual market size of approximately $1.3 billion and expects to file these products with the FDA shortly.