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 $139.05 million; its shares were traded at around $1.54 with and P/S ratio of 1.49.
Highlight of Business Operations:Ophthalmic revenues decreased by $318,000 or 6.2%, primarily due to targeted wholesaler reductions in stocking levels. Hospital drugs and injectables revenues decreased $3,073,000 or 48.8%, reflecting the targeted wholesaler reduction in stocking levels and associated decreased sales volume of anesthesia and antidote products. Vaccine sales for the quarter decreased by $8,458,000 versus the prior year period primarily due to the phase-out of our Td vaccine products along with less availability of flu vaccine. Contract services revenues decreased by $654,000 or 25.3%, mainly due to decreased order volumes on ophthalmic contract products.
Consolidated gross profit was $2,685,000 or 13.9% of revenue for the third quarter of 2009 as compared to a gross profit of $9,906,000 or 31.1% of revenue in the same period a year ago mainly due to reduced hospital drug and injectable sales to wholesalers, higher purchase costs for our Td vaccine product and a mix shift toward lower margin hospital drugs and injectables and contract manufacturing products. We continue to seek margin enhancement opportunities through our product offerings and efficiencies directed at reducing our product returns expense as well as efficiencies and cost reductions in our operating facilities.
Ophthalmic revenues decreased $2,495,000 or 16.2%, primarily due to a provision of $708,000 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 have continued a trial sampling and price reduction program which we began in the first half of 2009 to stimulate market demand for this NDA product and do not expect additional significant returns of the product. Hospital Drugs & Injectables revenues decreased by $5,172,000 or 31.9% mainly due to targeted wholesaler stocking level reductions and decreased sales of anesthesia products. Biologics & Vaccines sales decreased by $1,748,000 or 5.9% primarily due to lower flu vaccine sales in 2009. The loss of our exclusivity with our Td vaccine supplier, as noted in our first quarter 2009 Form 10-Q, may adversely impact our ability to maintain market share and generate future Td sales. Our contract services revenues decreased by $436,000 or 6.9% mainly due to decreased order volumes on ophthalmic contract products
Year-to-date consolidated gross profit was $9,714,000 or 16.8% of revenue for 2009 as compared to a gross profit of $18,480,000 or 27.4% of revenue for the same period a year ago mainly due to the variation in sales volume and product mix for each segment discussed above. We continue to seek margin enhancement opportunities through our product offerings as well as through cost reductions at our operating facilities.
On January 7, 2009, we entered into a Credit Agreement (Credit Agreement) with General Electric Capital Corporation (GE Capital) as agent for several financial institutions (the Lenders) to replace our previous credit agreement with Bank of America which expired on January 1, 2009. Pursuant to the Credit Agreement, the Lenders agreed, among other things, to extend loans to us under a revolving credit facility (including a letter of credit subfacility) up to an aggregate principal amount of $25,000,000 (the Credit Facility). At our election, borrowings under the Credit Facility bore interest at a rate equal to either: (i) the base rate (defined as the highest of the Wall Street Journal prime rate, the federal funds rate plus 0.5% or LIBOR plus 1.0%), plus a margin equal to (x) 4% for the period commencing on the closing date through April 14, 2009, or (y) a percentage that ranged between 3.75% and 4.25% for the period after April 14, 2009, or (ii) LIBOR (or 2.75%, if LIBOR is less than 2.75%), plus a margin equal to (x) 5% for the period commencing on the closing date through April 14, 2009, or (y) a percentage that ranged between 4.75% and 5.25% for the period after April 14, 2009. Upon the occurrence of any event of default, we were to pay interest equal to an additional 2.0% per year. The Credit Agreement contained affirmative, negative and financial covenants customary for financings of this type. The negative covenants included restrictions on liens, indebtedness, payments of dividends, disposition of assets, fundamental changes, loans and investments, transactions with affiliates and negative pledges. The financial covenants included fixed charge coverage ratio, minimum-EBITDA, minimum liquidity and a maximum level of capital expenditures. In addition, our obligations under the Credit Agreement could have been accelerated upon the occurrence of an event of default under the Credit Agreement, which included customary events of default such as payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, defaults relating to certain governmental enforcement actions, and a change of control default. The Credit Facility would have terminated, and all amounts outstanding thereunder would have been due and payable, on January 7, 2013, or on an earlier date as specified in the Credit Agreement.
In July 2008, we amended our Exclusive Distribution Agreement with the Massachusetts Biologic Laboratories of the University of Massachusetts Medical School (MBL) dated as of March 22, 2007 (the MBL Distribution Agreement) to: (i) allow us to destroy our remaining inventory of Tetanus Diphtheria (Td) vaccine, 15 dose/vial, in exchange for receiving an equivalent number of doses of preservative-free Tetanus Diphtheria vaccine, 1 dose/vial (the Single-dose Product) at no additional cost other than destruction and documentation expenses; (ii) reduce the purchase price of the Single-dose Product during the first year of the MBL Distribution Agreement by approximately 14.4%; (iii) reduce our purchase commitment for the second year by approximately 34.7%; and (iv) reduce our purchase commitment for the third year by approximately 39.5%.
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