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Akorn Reports Third Quarter 2012 Financial Results

  Akorn Reports Third Quarter 2012 Financial Results

   Reports Record Q3 Revenue of $69.6 million and Q3 Adjusted EPS of $0.14

Business Wire

LAKE FOREST, Ill. -- November 06, 2012

Akorn, Inc. (NASDAQ: AKRX), a niche generic pharmaceutical company, today
reported financial results for the third quarter of 2012.

Third Quarter Highlights

  *Thirteenth consecutive quarter of growth in core business revenue and
    adjusted EBITDA. Akorn’s core business consists of the ophthalmic,
    hospital drugs & injectables and contract services segments.
  *Revenue growth of 90% over the comparable prior year quarter.
  *Strong operating cash flow of $15.0 million.
  *Received FDA approval for three new ANDAs including Progesterone Capsule,
    which launched in late October.
  *Launched three new products: Latanoprost Ophthalmic Solution; Neomycin and
    Polymyxin B Sulfates, Bacitracin Zinc and Hydrocortisone Ophthalmic
    Ointment; and Benztropine Mesylate Injection, the authorized generic of
    Cogentin®.
  *Filed 5 new internally developed ANDAs and completed the development on an
    additional 5 ANDAs with a combined annual market size of approximately
    $1.0 billion.

Raj Rai, Chief Executive Officer commented, “We had another outstanding
quarter with solid growth, sustained gross margins and impressive cash flow.
The third quarter results are a culmination of successful execution of our
strategic initiatives consisting of completing acquisitions and reviving and
re-launching products in which the market dynamics have improved. In the third
quarter we also launched three new products and we are particularly excited
about the recent approval of generic Prometrium®. These recent approvals and
launches are expected to be meaningful growth drivers in 2013.”

Rai further added, “We were forced to close our manufacturing plant in
Somerset, NJ for more than one week due to power outages caused by Hurricane
Sandy. The good news is that all of our employees are safe and accounted for,
and our plant did not suffer any infrastructure damage. As a result of the
storm, we expect to lose approximately two weeks of production. Consequently,
we anticipate 2012 revenues will be in the mid-range of our previously issued
guidance of $248 to $258 million.”

Consolidated revenue for the third quarter of 2012 was $69.6 million, up 90%
over the comparable prior year quarter consolidated revenue of $36.7 million.
Growth came from market share gains in established products; new products,
such as oral vancomycin; the relaunch of certain injectable and ophthalmic
products, and the acquisitions of Lundbeck products and certain assets of
Kilitch Drugs (India) Limited, partially offset by decreases in our U.S.
contract services revenue.

Consolidated gross margin for the third quarter of 2012 was 57.6% compared to
59.9% in the comparable prior year period. Gross margin for the third quarter
of 2012, excluding the impact of Akorn India, was 61.8%. Sustained
improvements in gross margin are the result of favorable product mix, the
acquisition of higher margin products from Lundbeck, and higher utilization of
plant capacities.

Net income for the third quarter of 2012 was $13.8 million, or $0.12 per
diluted share compared to net income of $13.5 million, or $0.13 per diluted
share in the comparable prior year quarter. Third quarter 2011 net income
included an income tax benefit of $6.2 million, or $0.06 per diluted share.
The benefit resulted from the reversal of the reserve on the Company’s
deferred tax assets based on the determination that the Company would generate
earnings sufficient to realize these assets. Third quarter 2012 net income
benefited from lower than anticipated R&D expense in the quarter as a result
of the timing of certain development milestones and internal development
activities.

Non-GAAP adjusted net income for the third quarter of 2012 was $16.0 million,
or $0.14 per diluted share, compared to non-GAAP adjusted net income of $9.2
million, or $0.09 per diluted share in the comparable prior year quarter.

Third quarter 2012 non-GAAP Adjusted EBITDA was $27.9 million, up 135%
compared with $11.9 million in the comparable prior year quarter. Non-GAAP
financial measures are defined further below under “Non-GAAP Financial
Measures.”

2012 Outlook

The Company expects to lose two weeks of production from its Somerset, New
Jersey ophthalmic plant as a result of Hurricane Sandy, which will impact both
revenue and gross profit as a result of lost sales and lost manufacturing
overhead absorption. As a result, the Company expects fourth quarter 2012
revenue, as a best case scenario, to be flat to third quarter.

The Company anticipates a $2.5 million increase in R&D expense in the fourth
quarter compared with the third quarter. The anticipated increase is the
result of the expected achievement of external development milestones, as well
as the implementation of the new FDA Generic Drug User Fee Act (GDUFA) and the
resulting ANDA backlog fees as well as fees on anticipated fourth quarter ANDA
filings.

Factoring in the combined impact of Hurricane Sandy and increased fourth
quarter R&D expense, the Company estimates 2012 non-GAAP adjusted net income
per share consistent with its previously issued guidance of $0.50 to $0.52.

2012 outlook excludes the impact of any new approvals after November 6, 2012.

Akorn’s R&D Pipeline

The Company has 45 ANDAs filed with the FDA with a combined annual market size
of approximately $4.9 billion. The Company has completed development work on
14 additional products with a combined annual market size of approximately
$0.5 billion and expects to file these products with the FDA shortly.

Third Quarter 2012 Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on Tuesday,
November 6, 2012, to discuss third quarter 2012 results followed by a Q&A
session. The domestic call-in number is 888-389-5988 and the international
call-in number is 719-325-2452. The confirmation code for all callers is
9897443. The URL for the webcast is
http://www.videonewswire.com/event.asp?id=90009. A live broadcast of the
conference call will also be available online at www.akorn.com under the
Investor Relations tab and available for replay for 30 days.

About Akorn, Inc.

Akorn, Inc. is a niche 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 and Paonta Sahib, India where the Company manufactures ophthalmic and
injectable pharmaceuticals. Additional information is available on the
Company’s website at www.akorn.com.

Forward Looking Statement

This press release includes statements that may constitute "forward-looking
statements", including projections of certain measures of Akorn's results of
operations, projections of sales, projections of certain charges and expenses,
projections due to the closure of its Somerset, New Jersey manufacturing
facility, the impact of Hurricane Sandy, projections related to the number and
potential market size of ANDAs and other statements regarding Akorn's goals,
regulatory approvals and strategy. Akorn cautions that these forward-looking
statements are subject to risks and uncertainties that may cause actual
results to differ materially from those indicated in the 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. They use words such as
"anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
and other words and terms of similar meaning in connection with a discussion
of future operating or financial performance. Factors that could cause or
contribute to such differences include, but are not limited to: statements
relating to future steps we may take, prospective products, future performance
or results of current and anticipated products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, and financial results.
These cautionary statements should be considered in connection with any
subsequent written or oral forward-looking statements that may be made by the
company or by persons acting on its behalf and in conjunction with its
periodic SEC filings. You are advised, however, to consult any further
disclosures we make on related subjects in our reports filed with the SEC. In
particular, you should read the discussion in the section entitled "Cautionary
Statement Regarding Forward-Looking Statements" in our most recent Annual
Report on Form 10-K, as it may be updated in subsequent reports filed with the
SEC. That discussion covers certain risks, uncertainties and possibly
inaccurate assumptions that could cause our actual results to differ
materially from expected and historical results. Other factors besides those
listed there could also adversely affect our results.

Non-GAAP Financial Measures

In addition to reporting all financial information required in accordance with
generally accepted accounting principles (GAAP), Akorn is also reporting
Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted
share, which are non-GAAP financial measures. Since Adjusted EBITDA, Adjusted
net income and Adjusted net income per diluted share are not GAAP financial
measures, they should not be used in isolation or as a substitute for
consolidated statements of operations and cash flow data prepared in
accordance with GAAP. In addition, Akorn’s definitions of Adjusted EBITDA,
Adjusted net income and Adjusted net income per diluted share may not be
comparable to similarly titled non-GAAP financial measures reported by other
companies. For a full reconciliation of Adjusted EBITDA and Adjusted net
income to GAAP net income, please see the attachments to this earnings
release.

Core business revenue, as defined by the Company, is equal to total GAAP
revenues, less revenue attributed to the Biologics & vaccines segment, which
the Company exited during the quarter ended March 31, 2010. The Company
believes that core business revenue is a meaningful indicator in that it helps
investors to evaluate the Company’s revenue trends from its current reportable
segments, excluding the impact of the Company’s exit from the biologics &
vaccines segment, which it did not consider to be part of its core business.

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
  *Non-cash expenses, such as share-based compensation expense, changes in
    the fair value of warrants, and deferred financing cost amortization
  *Other adjustments, such as equity in earnings of unconsolidated joint
    venture related to the sale of the joint venture's assets, amortization of
    the fair value adjustment to inventory acquired through business
    acquisitions, and Kilitch Drugs (India) Limited acquisition related
    expense

The Company believes that Adjusted EBITDA is a meaningful indicator, to both
Company management and investors, of the past and expected ongoing operating
performance of the Company. EBITDA is a commonly used and widely accepted
measure of financial performance. 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 (i.e. fair value adjustments to the
carrying value of stock warrants liability).

Adjusted net income, as defined by the company, is calculated as follows:

Income before income taxes, plus:

  *Intangible asset amortization
  *Non-cash expenses, such as non-cash interest, share-based compensation
    expense, changes in the fair value of warrants, and deferred financing
    cost amortization
  *Other adjustments, such as equity in earnings of unconsolidated joint
    venture related to the sale of the joint venture's assets, amortization of
    the fair value adjustment to inventory acquired through business
    acquisitions, and Kilitch Drugs (India) Limited acquisition related
    expense
  *Less an estimated cash tax provision, net of the benefit from utilizing
    NOL carry-forwards.

Adjusted net income per diluted 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 net income per
diluted shares 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. Adjusted net income and Adjusted net
income per diluted share provide the Company and investors with income figures
that would be expected to be more aligned with cash flows than GAAP net
income, which includes a host of non-cash income and expense items.

While the Company uses Core business revenue, Adjusted EBITDA, Adjusted net
income and Adjusted net income per diluted share in managing and analyzing its
business and financial condition and believes these non-GAAP financial
measures to be useful to investors in evaluating the Company’s performance,
each of these financial measures has certain shortcomings. Core business
revenue does not provide a full picture of the Company’s historical revenues.
Adjusted EBITDA does not take into account the impact of capital expenditures
on either the liquidity or the GAAP 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 stock-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 each of these non-GAAP financial measures, the Company’s
management utilizes comparable GAAP financial measures to evaluate the
business in conjunction with Adjusted EBITDA and encourages investors to do
likewise.

                                                              
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
                                                                        
                      THREE MONTHS ENDED                NINE MONTHS ENDED
                      SEPTEMBER 30,                     SEPTEMBER 30,
                       2012          2011            2012          2011    
                                                                        
Revenues              $ 69,634        $ 36,703          $ 184,638       $ 94,295
Cost of sales          29,541        14,725          77,917        40,181  
    GROSS PROFIT        40,093          21,978            106,721         54,114
                                                                        
Selling, general
and administrative      12,346          8,669             33,625          22,983
expenses
Acquisition-related     511             337               9,155           556
costs
Research and
development             2,874           3,109             9,824           7,763
expenses
Amortization of        1,759         509             5,076         1,074   
intangibles
    TOTAL OPERATING    17,490        12,624          57,680        32,376  
    EXPENSES
                                                                        
    OPERATING           22,603          9,354             49,041          21,738
    INCOME
                                                                        
Amortization of
deferred financing      (193    )       (165    )         (581    )       (1,761  )
costs
Non-cash interest       (1,228  )       (909    )         (3,615  )       (1,195  )
expense
Interest expense,       (959    )       (973    )         (3,009  )       (1,286  )
net
Equity in earnings
of unconsolidated      -             -               -             14,530  
joint venture
    INCOME BEFORE       20,223          7,307             41,836          32,026
    INCOME TAXES
Income tax             6,470         (6,217  )        15,269        (5,254  )
provision (benefit)
    NET INCOME        $ 13,753       $ 13,524         $ 26,567       $ 37,280  
                                                                        
NET INCOME PER
SHARE:
    BASIC             $ 0.14         $ 0.14           $ 0.28         $ 0.39    
    DILUTED           $ 0.12         $ 0.13           $ 0.24         $ 0.36    
                                                                        
SHARES USED IN
COMPUTING NET
INCOME
PER SHARE:
    BASIC              95,078        94,650          95,128        94,477  
    DILUTED            110,430       104,188         111,388       103,524 
                                                                        
COMPREHENSIVE
INCOME:
    Net income          13,753          13,524            26,567          37,280
    Foreign
    currency           3,268         -               (3,692  )      -       
    translation
    gain (loss)
    Comprehensive      17,021        13,524          22,875        37,280  
    income

                                                            
AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
  
                                               SEPTEMBER 30       DECEMBER 31,
                                                  2012               2011
                                               (Unaudited)        (Audited)
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                   $  38,402          $  83,962
   Trade accounts receivable, net                 44,536             25,307
   Inventories                                    50,230             35,456
   Deferred taxes, current                        6,380              8,153
   Prepaid expenses and other current            3,896            3,071   
   assets
          TOTAL CURRENT ASSETS                    143,444            155,949
PROPERTY, PLANT AND EQUIPMENT, NET                78,152             44,389
OTHER LONG-TERM ASSETS:
   Goodwill                                       32,369             11,863
   Product licensing rights, net                  64,186             67,822
   Other intangibles, net                         17,375             13,016
   Deferred financing costs                       3,279              3,864
   Deferred taxes, non-current                    1,938
   Long-term investments                          10,284             10,137
   Other                                         200              105     
          TOTAL OTHER LONG-TERM ASSETS           129,631          106,807 
          TOTAL ASSETS                         $  351,227        $  307,145 
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Trade accounts payable                      $  17,478          $  17,874
   Accrued compensation                           4,816              5,094
   Contingent consideration payable               3,250              -
   Accrued expenses and other liabilities        13,750           5,321   
          TOTAL CURRENT LIABILITIES               39,294             28,289
LONG-TERM LIABILITIES:
   Convertible notes due 2016                     103,653            100,808
   Purchase consideration payable                 14,910             13,841
   Deferred taxes, non-current                    1,686              3,742
   Product warranty liability                     1,299              1,299
   Lease incentive obligations and Other         874              958     
   long-term liabilities
          TOTAL LONG-TERM LIABILITIES            122,422          120,648 
                   TOTAL LIABILITIES             161,716          148,937 
SHAREHOLDERS' EQUITY:
   Common stock, no par value -- 150,000,000 shares
   authorized, 95,314,602
          and 94,936,282 shares issued and outstanding at
          September 30, 2012
          and December 31, 2011,                  221,064            212,636
          respectively
   Warrants to acquire common stock               17,946             17,946
   Accumulated deficit                            (45,807 )          (72,374 )
   Accumulated other comprehensive loss          (3,692  )         -       
          TOTAL SHAREHOLDERS' EQUITY             189,511          158,208 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $  351,227        $  307,145 


AKORN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
                                                         
                   THREE MONTHS ENDED               NINE MONTHS ENDED
                   SEPTEMBER 30,                    SEPTEMBER 30,
                    2012         2011            2012          2011    
                                  (Restated)                        (Restated)
OPERATING
ACTIVITIES
Net income         $ 13,753       $ 13,524          $ 26,567        $ 37,280
Adjustments to
reconcile net
income to net
cash
provided by
operating
activities:
  Depreciation
  and                2,921          1,392             8,240           3,701
  amortization
  Write-off and
  amortization       193            165               581             1,761
  of deferred
  financing fees
  Non-cash stock
  compensation       1,868          1,273             5,049           3,767
  expense
  Non-cash
  interest           1,228          -                 3,615           -
  expense
  Deferred tax       (3,061 )       (6,688  )         200             (6,688  )
  assets, net
  Excess tax
  benefit from       (812   )       -                 (2,407  )
  stock
  compensation
  Amortization
  of debt            -              909               -               1,195
  discount
  Equity in
  earnings of        -              -                 -               (14,530 )
  unconsolidated
  joint venture
  Changes in
  operating                         
  assets and
  liabilities:
     Trade
     accounts        (7,228 )       (2,912  )         (17,208 )       (7,980  )
     receivable
     Inventories     (3,519 )       (4,643  )         (13,080 )       (8,164  )
     Prepaid
     expenses
     and other       19             904               (1,052  )       (216    )
     current
     assets
     Trade
     accounts        1,281          851               (733    )       3,066
     payable
     Accrued
     expenses       8,383        2,111           11,540        1,024   
     and other
     liabilities
NET CASH
PROVIDED BY          15,026         6,886             21,312          14,216
OPERATING
ACTIVITIES
                                                                    
INVESTING
ACTIVITIES
Payments for
acquisitions and     -              (10,723 )         (55,224 )       (36,734 )
equity
investments
Purchases of
property, plant      (2,503 )       (3,130  )         (14,756 )       (8,362  )
and equipment
Distribution
from                 -              750               -               3,881
unconsolidated
joint venture
Purchase of
product             -            (1,678  )        -             (5,678  )
licensing rights
NET CASH USED IN
INVESTING            (2,503 )       (14,781 )         (69,980 )       (46,893 )
ACTIVITIES
                                                                    
FINANCING
ACTIVITIES
Proceeds from
issuance of          -              -                 -               120,000
convertible
notes
Debt financing       -              (96     )         -               (4,683  )
costs
Net proceeds
from common
stock offering       -              -                 -               1,727
and warrant
exercises
Excess tax
benefit from         812            -                 2,407           -
stock
compensation
Proceeds under
stock option and    449          116             972           618     
stock purchase
plans
NET CASH
PROVIDED BY          1,261          20                3,379           117,662
FINANCING
ACTIVITIES
                                                                    
Effect of
changes in
exchange rates      208          -               (271    )      -       
on cash & cash
equivalents
INCREASE
(DECREASE) IN
CASH AND CASH
  EQUIVALENTS        13,992         (7,875  )         (45,560 )       84,985
Cash and cash
equivalents at      24,410       134,483         83,962        41,623  
beginning of
period
CASH AND CASH
EQUIVALENTS AT     $ 38,402      $ 126,608        $ 38,402       $ 126,608 
END OF PERIOD
                                                                    

                                                         
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
IN THOUSANDS (UNAUDITED)

                        THREE MONTHS ENDED            NINE MONTHS ENDED
                        SEPTEMBER 30,                 SEPTEMBER 30,
                         2012        2011           2012        2011    
                                                                   
NET INCOME              $ 13,753     $ 13,524         $ 26,567     $ 37,280
                                                                   
ADJUSTMENTS TO
ARRIVE AT EBITDA:
  Depreciation            1,156        883              3,158        2,627
  expense
  Amortization            1,759        509              5,076        1,074
  expense
  Interest expense,       959          973              3,009        1,286
  net
  Non-cash interest       1,228        909              3,615        1,195
  expense
  Income tax             6,470       (6,217 )        15,269      (5,254  )
  provision
EBITDA                  $ 25,325     $ 10,581         $ 56,694     $ 38,208
                                                                   
NON-CASH AND OTHER
NON-RECURRING
INCOME
AND EXPENSES:
  Kilith
  acquisition             511          -                8,835
  related expense
  Non-cash stock
  compensation            1,868        1,273            5,049        3,767
  expense
  Write-off and
  amortization of         193          165              581          1,761
  deferred
  financing costs
  Equity in
  earnings of
  unconsolidated
  joint venture
  that
  is related to the
  sale of the joint       -            -                -            (13,380 )
  venture's assets
  Amortization of
  the fair value
  adjustment to
  AVR's
  acquired               -           (124   )        -           553     
  inventory
ADJUSTED EBITDA         $ 27,897     $ 11,895        $ 71,159     $ 30,909  
                                                                   
                                                                   
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
                                                                   
                        THREE MONTHS ENDED            NINE MONTHS ENDED
                        SEPTEMBER 30,                 SEPTEMBER 30,
                         2012        2011           2012        2011    
                                                                   
INCOME BEFORE           $ 20,223     $ 7,307          $ 41,836     $ 32,026
INCOME TAXES
                                                                   
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:
  Kilitch
  acquisition             511          -                8,835        -
  related expense
  Non-cash stock
  compensation            1,868        1,273            5,049        3,767
  expense
  Non-cash interest       1,228        909              3,615        1,195
  expense
  Amortization            1,759        509              5,076        1,074
  expense
  Write-off and
  amortization of         193          165              581          1,761
  deferred
  financing costs
  Equity in
  earnings of
  unconsolidated
  joint venture
  that
  is related to the
  sale of the joint       -            -                -            (13,380 )
  venture's assets
  Amortization of
  the fair value
  adjustment to
  AVR's
  acquired               -           (124   )        -           553     
  inventory
                                                                   
ADJUSTED INCOME           25,782       10,039           64,992       26,996
BEFORE INCOME TAXES
                                                                   
ADJUSTED INCOME TAX      9,823       853            21,953      2,295   
PROVISION
                                                                   
ADJUSTED NET INCOME     $ 15,959     $ 9,186         $ 43,039     $ 24,701  
                                                                   
ADJUSTED NET INCOME     $ 0.14       $ 0.09          $ 0.39       $ 0.24    
PER DILUTED SHARE
                                                                   

Contact:

Akorn, Inc.
Tim Dick, 847-279-6150
Chief Financial Officer
 
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