Akorn Provides Preliminary Unaudited Full Year 2015 Financial Results and Issues 2016 Financial Guidance

Table 1: Akorn Preliminary 2015 Financial Performance and 2016 Financial Guidance

Important assumptions underpinning Akorn’s 2016 guidance include the following:

• No new product approvals are included in guidance. Akorn’s guidance only contemplates launches of products approved by the FDA as of March 22, 2016 along with the full year contribution of products launched in 2015.  Products that are not yet approved by the FDA are not included in Akorn’s 2016 financial guidance.
• Competition on existing products. Akorn expects incremental competition on Ephedrine Sulfate Injection, USP and Nembutal® Sodium Solution.
• Several incremental investments are included in adjusted 2016 guidance. Akorn’s adjusted 2016 guidance includes incremental investments in manufacturing optimization and serialization initiatives, research & development initiatives, and investment in Akorn India that result in an approximate $0.10 per share impact to the Company’s 2016 adjusted non-GAAP EPS expectations. 
   

Capital Position, Leverage and Liquidity

Reflective of Akorn’s voluntary partial prepayment of $200 million of its outstanding term loan facility on February 16, 2016, the Company’s unaudited liquidity position at December 31, 2015 and February 29, 2016 is detailed in Table 2 below. As of December 31, 2015 and February 29, 2016, there was approximately $43 million outstanding in convertible notes due June 2016 included in Akorn’s short- and long-term debt balances. As previously disclosed, Akorn intends to settle its outstanding convertible notes in shares of Akorn common stock upon conversion or at maturity on June 1, 2016.

Akorn ended 2015 with a net debt to adjusted EBITDA ratio of approximately 1.6x and, absent any significant business development transactions, expects to end 2016 with a net debt to adjusted EBITDA ratio of approximately 1.0x. Akorn expects to generate between $225 million and $250 million in cash from operations in 2016.

Table 2: Preliminary Cash and Unaudited Debt Balances

R&D Update

As of February 29, 2016, Akorn had 87 ANDAs pending at the FDA, representing approximately $9.3 billion in annual branded and generic market value according to IMS Health. Akorn has over 65 additional ANDAs in various stages of development, representing approximately $12 billion in annual branded and generic market value according to IMS Health.

Akorn has received correspondence in the form of Complete Response Letters or Information Requests covering approximately 50 pending ANDAs, indicating to Akorn that the FDA is actively reviewing these filings. While subject to FDA review, Akorn expects that it could receive approval for up to half of these filings within the next 12 months; the annual market value of these near-term approvable filings is approximately $1 billion according to IMS Health.

In 2015 Akorn and its development partners received 11 ANDA product approvals, one NDA product approval and two tentative ANDA approvals from the FDA along with a significant new product supplementary ANDA approval for Myorisan™ 30mg Capsules.  In addition, Akorn received two abbreviated new animal drug application (ANADA) product approvals for veterinary products in 2015.

For the year ended December 31, 2015, Akorn filed 18 ANDAs and one NDA with FDA.

Table 3: Status of Akorn Pending ANDA Filings, February 29, 2016

*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended January 31, 2016 and excludes any trade and/or customary allowances and discounts. The IMS market value is not a forecast of Akorn’s potential future sales. Value columns and rows may not add due to rounding.

Product Launch Update

In 2015, Akorn launched 12 new products or product forms, representing approximately $577 million in annual branded and generic market value according to IMS Health. Akorn has launched two products so far in 2016.

Table 4: 2015 Product Launches

*The IMS market value, shown in millions USD, is based on IMS data for the trailing 12 months ended January 31, 2016 and excludes any trade and/or customary allowances and discounts. The IMS market size is not a forecast of Akorn’s potential future sales.

Information Regarding Preliminary Unaudited Results

The financial results presented in this release are preliminary and may change subject to the completion of the audit by Akorn’s independent registered public accounting firm. These preliminary results include calculations and projections that have been prepared by Akorn management and there can be no assurance that Akorn’s actual financial results will not materially differ from the preliminary unaudited financial data presented herein. In addition, the preliminary unaudited financial data presented for 2015 is summary in nature and should not be viewed as a substitute for the full financial information prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which is expected to be filed with the SEC at a later date. Please see the “Restatement Update” and “Forward Looking Statements” sections of this press release for further information.

Conference Call and Webcast Details

Akorn’s management will hold a conference call with interested investors and analysts at 10:00 a.m. EDT today, March 22, 2016 to discuss these updates in more detail. The dial-in number to access the call is (888) 357-9787 in the U.S. and Canada and +1 (503) 406-4383 for international callers. The conference ID is 59311299. To access the live webcast, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.

A webcast replay of the conference call will be available shortly following the conclusion of the call and will be available for 90 days following the call. To access the webcast replay, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.

About Akorn

Akorn, Inc. is a specialty generic pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals. Additional information is available on Akorn’s website at www.akorn.com.

Non-GAAP Financial Measures

To supplement Akorn’s financial guidance presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP (also referred to as “adjusted” or “non-GAAP adjusted”) financial measures in this press release and the accompanying tables, including EBITDA, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted revenues, adjusted gross margin, adjusted SG&A, adjusted R&D and adjusted non-operating expense. These non-GAAP measures adjust for certain specified items that are described in the release. The Company believes that each of these non-GAAP financial measures are helpful in understanding its past financial performance and potential future results, particularly in light of the effect of various acquisition and divestiture transactions effected by the Company.  The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for or superior to comparable GAAP measures. 

Akorn’s management uses adjusted EBITDA, adjusted net income and adjusted diluted earnings per share in managing and analyzing its business and financial condition. Akorn’s management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn’s ongoing results of operations allowing investors to better compare the Company’s results from period to period.

Investors should note that these non-GAAP financial measures used to present financial guidance are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. Investors should also note that these non-GAAP financial measures have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. In addition, from time-to-time in the future there may be other items that the Company may exclude for purposes of its non-GAAP financial measures; likewise, the Company may in the future cease to exclude items that it has historically excluded for purposes of its non-GAAP financial measures. Because of the non-standardized definitions, the non-GAAP financial measures as used by Akorn in this press release and the accompanying tables may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by the Company’s competitors and other companies.

Set forth below is the definition of each non-GAAP financial measure as used by the Company in this press release and a full reconciliation of each non-GAAP financial measure to the most closely applicable GAAP financial measures.

EBITDA, as defined by the Company, represents net income before net interest expense, income tax expense, depreciation and amortization.

Adjusted EBITDA, as defined by the Company, is calculated as follows:
Net income, plus:

• Interest income (expense), net
• Provision for income taxes
• Depreciation and amortization
• Amortization of acquisition related inventory step-up
• Non-cash expenses, such as share-based compensation expense, and amortization of deferred financing costs
• Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
• Less gains (or plus losses) on foreign currency transactions
   

Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash and non-recurring operating expenses which have little to no bearing on cash flows and may be subject to uncontrollable factors not reflective of the Company's true operational performance.

Adjusted net income, as defined by the Company, is calculated as follows:
Net income, plus:

• Intangible asset amortization
• Non-cash expenses, such as non-cash interest, share-based compensation expense, and amortization of financing costs
• Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
• Amortization of acquisition-related inventory step-up
• Less gains (or plus losses) on foreign currency transactions
• Less gains related to acquisitions and divestitures
• Less an estimated tax provision, net of the benefit from utilizing net operating loss carry-forwards effected for the adjustments noted above
   

Adjusted diluted earnings per share is equal to adjusted net income divided by the actual or anticipated diluted share count for the applicable period. The Company believes that adjusted net income and adjusted diluted earnings per share are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance. 

Net debt, as defined by the Company, is gross debt including Akorn’s term loan, convertible notes and revolving debt balances (if applicable) less cash and cash equivalents.

In addition, as used in this press release, (i) adjusted gross margin excludes amortization of inventory step-up and share-based compensation expense; (ii) adjusted SG&A excludes amortization, financial restatement expenses, acquisition-related expenses, and share-based compensation expense; (iii) adjusted R&D excludes share-based compensation expense and impairment of IPR&D; (iv) adjusted other non-operating income excludes non-cash interest, cash interest on convertible debt outstanding, the amortization of deferred financing, the impact of litigation settlements, foreign currency adjustments and gains or loss on the sale or purchase of assets; and (v) adjusted tax and adjusted tax rate exclude the impact of the above adjustments on tax.

The shortcomings of non-GAAP financial measures as guidance or performance measures are that they provide a view of the Company’s results of operations without including all events during a period. For example, Adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the financial performance of the Company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense. Adjusted net income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include share-based compensation, which is an important and material element of the Company's compensation package for its directors, officers and other key employees. Due to the inherent limitations of non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most closely applicable GAAP measures as presented in this press release.

Forward Looking Statements

This press release includes statements that may constitute "forward looking statements", including the expected timing of filings, the expected impact of the restatement on our financial results, projections of sales and revenues, our financial guidance, the timing of filing and the results of ANDAs, and other statements regarding Akorn's launches, regulatory approvals, goals and strategy. When used in this document, the words “anticipate,” “believe,” “estimate” and “expect” and similar expressions are generally intended to identify forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Factors that could cause or contribute to such differences include, but are not limited to: the difficulty of predicting the timing of the completion of our restatement, its impact on our financial results, and the timing of the related filings; the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any; the impact of competitive products and pricing; the susceptibility of our generic and off-patent pharmaceutical products to competition, substitution policies and reimbursement policies of the government; the timing and success of product launches; difficulties or delays in manufacturing; the availability and pricing of third party sourced products and materials; successful compliance with FDA and other governmental regulations; the continuing consolidation of our customer base, which could adversely affect sales of our products; our dependence on a small number of distributors, the loss of any of which could have a material adverse effect; changes in the laws and regulations and such other risks and uncertainties outlined in Akorn's public filings with the SEC and in other written or oral investor communications.  Other factors besides those listed there could also adversely affect our results.  Except as expressly required by law, Akorn disclaims any intent or obligation to update these forward-looking statements.

The addressable IMS market value figures presented in this press release outline the approximate aggregate size of the potential market, as estimated by IMS Health, and are not forecasts of our future sales.

Additional Financial Tables and Supplemental Information

2015 Preliminary Revenue Not Comparable to Previous Guidance

Akorn’s preliminary estimated revenue of approximately $985 million is not comparable to the Company’s prior guidance of adjusted revenue of between $970 million and $980 million as prior guidance excluded approximately $14 million in costs associated with competitive pricing actions. It is Akorn’s practice to not exclude such costs in adjusted net revenue guidance. A reconciliation of Akorn’s prior guidance including costs associated with competitive pricing actions is provided in the table below.

Table 5: Reconciliation of Prior 2015 Non-GAAP Financial Guidance to Include Costs Associated with Competitive Pricing Actions

Table 6: Reconciliation of Preliminary 2015 Non-GAAP Financial Results from Unaudited Preliminary 2015 GAAP Financial Results

Table 7: Reconciliation of 2015 Non-GAAP Adjusted Preliminary Net Income from Unaudited Preliminary GAAP Net Income

Table 8: Reconciliation of 2015 Preliminary Adjusted EBITDA from Preliminary EBITDA

Table 9: Reconciliation of 2016 Non-GAAP Financial Guidance from 2016 GAAP Financial Guidance  

Table 10: Reconciliation of 2016 Non-GAAP Adjusted Net Income Guidance from GAAP Net Income Guidance

Table 11: Reconciliation of 2016 Adjusted EBITDA Guidance from EBITDA Guidance

Investors/Media:
Dewey Steadman
Executive Director, Investor Relations
(847) 582-6923
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