Akorn Inc. manufactures and markets diagnostic and therapeutic pharmaceuticals in specialty areas such as ophthalmology rheumatology anesthesia and antidotes among others. They also market ophthalmic surgical instruments and related products. Customers include physicians optometrists wholesalers group purchasing organizations and otherpharmaceutical companies. They also provide contract manufacturingservices. Akorn inc. has a market cap of $103.8 million; its shares were traded at around $1.15 with and P/S ratio of 1.1. Highlight of Business Operations: Ophthalmic segment revenues decreased 30.4%, or $1,304,000, primarily due to a provision of $863,000 we recorded to recognize a significant return of our Akten® ophthalmic solution product and also overall less favorable wholesaler returns experience. Akten® was launched in October 2008 and the significant returns were not previously anticipated as we had expected to capture significant market share based on the products attributes. We commenced a trial sampling and price reduction program in the May/June period to stimulate market demand for this NDA product and do not expect additional significant returns of the product. Hospital drugs and injectables segment revenues decreased 31.8% or $1,545,000 reflecting the decreased sales volume of anesthesia and antidote products and the impact of a supplemental $242,000 returns reserve related to a recall of our Cyanide Antidote Kit due to a recall of a suppliers syringe used in the kit. Vaccine sales for this quarter decreased by $2,171,000 versus the prior year period primarily due to quarterly sales variations in our Td vaccine products as first quarter sales were very strong at $10,698,000. Contract services revenues increased by 4.4%, or $91,000, mainly due to increased order volumes on ophthalmic contract products.
Ophthalmic segment revenues decreased $2,177,000 or 21.3%, primarily due to a provision of $863,000 we recorded to recognize a significant return of our Akten® ophthalmic solution product and also overall less favorable wholesaler returns experience. Akten® was launched in October 2008 and the significant returns were not previously anticipated as we had expected to capture significant market share based on the products attributes. We are commencing a trial sampling and price reduction program to stimulate market demand for this NDA product and do not expect additional significant returns of the product. Hospital Drugs & Injectables segment revenues decreased by $2,099,000 or 21.1% mainly due to decreased sales of anesthesia products. Biologics & Vaccines sales increased by $6,710,000 or 56.8% as our Td vaccine market penetration has improved. The loss of our exclusivity with our Td vaccine supplier, as noted in our first quarter 2009 10-Q, may adversely impact our ability to maintain market share and generate future Td sales. Our contract services segment revenues increased by $218,000 or 5.9% mainly due to increased order volumes on contract products
In the first six months of 2009, we recognized $5,929,000 in expense related to the termination of our supply agreement with MBL which consisted of $4,750,000 in settlement payments, $1,051,000 in costs for an associated letter of credit guarantee for the $10,500,000 in total payments due MBL, and $128,000 in other related costs.
During the six-month period ended June 30, 2009, we used $4,612,000 in cash from operations, primarily due to the $17,641,000 net loss, a $2,515,000 accounts receivable increase in line with higher sales levels and a $3,556,000 decrease in accounts payable (primarily reduced Td vaccine payables), partially offset by a $5,556,000 decrease in inventory as we reduced our stock of Td vaccines and the addition of $4,750,000 in supply agreement termination liabilities associated with our Td vaccine supply agreement termination. In addition we had $1,552,000 in deferred financing cost write-offs along with non-cash depreciation, amortization, stock compensation, supply agreement termination expense and change in fair value of the warrants liability totaling $5,452,000. Investing activities generated an $892,000 reduction in cash flow mainly due to capital expenditures for plant equipment. Financing activities provided $5,460,000 in cash primarily due to the $5,509,000 in proceeds from our credit facility with EJ Funds, partially offset by $1,313,000 in loan origination fees (see Credit Facility below), along with proceeds from stock option exercises of $1,264,000.
During the six-month period ended June 30, 2008, we used $13,052,000 in cash from operations, primarily due to the $8,363,000 net loss, a $9,406,000 change in working capital items mainly due to an increase in accounts receivable related to increased sales and reduced accounts payable related to payments for vaccine inventory, partially offset by a reduction in vaccine inventory and non-cash expenses of $3,471,000 for the period. Investing activities generated a $1,420,000 reduction in cash flow mainly due to capital expenditures for production equipment and our new warehouse/office facilities. Financing activities provided $7,893,000 in cash, primarily due to the $9,658,000 in proceeds from our Credit Facility and $493,000 in proceeds from stock option and warrant exercises, partially offset by an increase in the restricted cash requirement of $2,050,000.
We were subsequently unable to make a payment of approximately $3,375,000 for Td vaccine products which was due to MBL by February 27, 2009 under the MBL Distribution Agreement. While we made a partial payment of $1,000,000 to MBL on March 13, 2009, we were unable to make another payment of approximately $3,375,000 due to MBL on March 28, 2009. Accordingly, we entered into a letter agreement with MBL on March 27, 2009 (MBL Letter Agreement), pursuant to which we agreed to pay MBL the $5,750,000 remaining due for these Td vaccine products plus an additional $4,750,000 in consideration of the amendments to the MBL Distribution Agreement payable according to a periodic payment schedule through June 30, 2010 (the Settlement Payments). In addition, pursuant to the MBL Letter Agreement, the MBL Distribution Agreement was converted to a non-exclusive agreement, we became obligated to provide MBL with a standby letter of credit (the L/C) to secure our obligation to pay amounts due to MBL, and we were released from our obligation to further purchase Td vaccine products from MBL upon providing MBL with such L/C. In addition, pursuant to the MBL Letter Agreement, MBL agreed not to declare a breach or otherwise act to terminate the MBL Distribution Agreement if we complied with the terms of the MBL Letter Agreement, the MBL Distribution Agreement (as amended by the MBL Letter Agreement) and any agreements required to be entered into pursuant to the MBL Letter Agreement.
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