Q3 2019 Earnings Call
Good morning, and welcome to the Acorn third quarter 2019 financial results call.
At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow what that Todd.
As a reminder, today's conference is being recorded.
I would like to turn the conference over to Jennifer Bowls, Acorn Senior Vice President of corporate strategy and Investor Relations. Please go ahead.
Thank you good morning, and welcome to equal in third quarter 2019 Conference call I'm joined today by Douglas School, Acorns, President and Chief Executive Officer, and Duane Portwood equal Burns Chief Financial Officer.
The third quarter press releases are available on the Investor Relations portion of Acorn's website on today's call Doug will provide a business update and then when Dwayne will review the company's third quarter 2019 financial results. We will then open up the call to your questions. As a reminder, the conference call and webcast are being recorded and will be available.
<unk> Investor Relations website shortly following the conclusion of today's call.
Before we begin I would like to remind everyone that any statements made on this call today that expresses belief expectation anticipation or intent as well as those that are not historical fact are considered forward looking statements and are protected by the safe Harbor provisions of the private Securities Litigation Reform Act foreign.
It's are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. A description of these risks can be found in the risk factor section of Acorn's. Most recent annual report on Form 10-K as updated by Acorn's subsequent filings with the FCC before.
Looking statements on this call speak only as of today's date and Acorn assumes no obligation to update forward looking statements as a result of new information for future developments.
That will turn the call over to Doug.
Thank you Jennifer good morning, and happy Halloween everyone.
As we quickly approaching ended the fiscal year I'm delighted by the continued progress made across our business and the performance momentum we've generated year to date.
For the first time since the fourth quarter 2016 company revenues for the quarter registered growth versus the prior year quarter.
Our financial results and operating performance. This quarter are a direct result of company wide commitment to strengthening our business through customer focus process improvements and cost containment activities.
Performance improvements across the business contributed to positive operating cash flow generation and continued margin growth for the quarter.
I'd like to take this time to thank all the Acorn associates for your hard work commitment and focus in support of our sales operations quality and financial targets.
One of the many examples we continue to improve our customer service levels in quarter three.
Throughout the year, our plan product availability has been increasing.
Service levels are higher and as a result fair to supply claims received in the third quarter were down significantly.
You may have noticed in our press release that fair to supply penalties were actually a small credit for the quarter.
This was driven not only by a large reduction in new claims received but also by a collaborative internal effort to improve our claims processing activities.
Allow for faster resolution of disputed claims and increased recoveries of the corresponding customer deductions.
Although we can't expect credits in future periods. This re engineered claims handling process as well as the companys operational focus on supply and demand planning to maximize revenues, while minimizing potential backorders should serve us well moving forward.
On the cgmp activities front I'm pleased to report that we're on track for essentially full completion over 43, a warning letter related action items in our Decatur facility by the end of 2019.
A notable it hasn't made during our schedule quarter three shutdown. It to cater was installation of restricted access barrier systems or reps on two additional injectable manufacturing lines.
At our Somerset facility, we've already completed the majority of our 43 action items and are on track to complete the majority of the warning letter activities in early 2020.
We are anticipating that the FDA will return to both of these facilities for re inspections.
However, we cannot predict when that will occur.
And as a follow up from recent interactions with FDA office of pharmaceutical quality leadership at the recent Pmeight conference. We are working to scheduled in person meeting to update the agency on our continued remediation progress.
And our companywide accused cap initiatives hopefully prior to year end.
On the new products front, we're pleased with the progress made in the first few months after launching a little spread no 0.5% ophthalmic suspension and have received recently completed the work necessary to expand our batch size to allow us to pursue additional market opportunities.
Also we launched I koeppen ex sodium 1% topical gel during the third quarter.
Well, there's a fair amount of competition for this product the market size is quite large so we're expecting some modest incremental revenue from this molecule going forward.
And for those you keeping track at home Diclofenac, as our fifth new product launched so far in 2019.
Also received two new Anda approvals during the quarter, bringing our total number of new Anda approvals to five year to date.
Looking ahead as a result of our third quarter performance and current expectations for the fourth quarter, we're updating our net loss and we are affirming our revenue and adjusted EBITDA guidance for full year 2019.
Year to date results have been tracking to our expectations, providing confidence in our long term strategy and support to the refinancing process, which Dwayne will provide more color on shortly.
When you Hurst first her for me in February articulated the belief that acorns roadmap to success will be paid by the continued prioritization and execution of our operations quality systems and compliance enhancement initiatives.
It is clear that these initiatives are bearing fruit.
I'll now hand, the call over to Dwayne for review of our financial results the refinancing activities and divide some more color on our guidance for fiscal year 2019.
Thank you, Doug and good morning, everyone.
I hope you've had a chance to read the press release, we issued earlier today outlining acorn's preliminary third quarter unaudited financial results. Please note that we intend to file our Form 10-Q later today.
When discussing our financial results. This morning, I'll be referring to a number of non-GAAP figures. Please refer to todays press release for our GAAP to non-GAAP reconciliations and the listing of items included in our adjustments.
With that.
Net revenue for the quarter ended September Thirtyth, 2019 was 176 million, an increase of 10.6 million or 6.4% over the prior year quarter.
The increase was primarily driven by favorable price variance that was partially offset by volume declines on a number of products, including my Orson and the prescription version or of our for took his own nasal spray.
Supply shortfalls from our Somerset site continued to negatively impact the year over year comparison.
Sequentially net revenues were down slightly but generally in line with the second quarter.
Gross margin for the third quarter was 40.5% compared to 34.6% for the prior year quarter.
This increase in gross margin was primarily driven by favorable price and product mix and lower FDA compliance related expenses, which were 4.6 million in the quarter compared to $9.5 million in the prior year quarter.
Please note that while these costs are included in our adjusted EBITDA results, we do call them out separately as we consider the amount of effort currently underway to be unusually high as we addressed indicator in Somerset warning letters and other cgmp enhancement opportunities.
On a sequential basis gross margin improved to 40.5% in the third quarter from 38.2% in the second quarter, mainly due to product mix, along with lower spending on FDA compliance related expenses.
This is really due to timing as we expect cgmp expenses to increase again in the fourth quarter as we work to complete the Somerset warning letter activities in early 2020.
Selling general and administrative expense was 56 million for the third quarter of 19 compared to $63 million for the prior year quarter.
The $7 million decrease was driven by lower legal expenses associated with the Delaware action and lower expenses related to our data integrity assessment effort.
These decreases were somewhat offset by increased expenses for refinancing advisory fees.
Please note that these aforementioned expenses are excluded from our adjusted EBITDA.
Research and development expense for the third quarter of 2019 was 9 million compared to $12 million in the third quarter 2018 reflect reflecting lower spend on labor in projects and is in line with our spending target as a percent of revenue.
Before we get to net income and adjusted EBITDA. There were two unusual items that had a significant impact on a reported third quarter results.
First as you may recall last quarter, we recorded a $74 million charge and corresponding liability due to the securities class action litigation settlement agreement in principle.
A portion of the agreement calls for the issuance of common shares and as such we are required to mark those contemplated shares to market each quarter until they are issued.
Because the company stock price at the end of the third quarter was lower than the stock price at the end of the second quarter the liability related to the contemplated share issuance declined and therefore resulted in a $12 million benefit to third quarter GAAP net income.
Note. This item is excluded on an adjusted basis.
As a reminder, the settlement agreement is not final it remains subject to final court approval and we have the ability to terminate the agreement if the opt out claims grow to be two large.
There are significant constraints on our ability to dedicate cash towards litigation settlements or judgments.
We believe the structure of the settlement offers class members real value in both the short and long term in spite of those cash limitations. Therefore, we hope that no shareholders ultimately decide to opt out.
The other unusual item that impacted third the third quarter relates to our income tax provision.
For the quarter, we reported a $66 million income tax benefit.
This benefit was primarily the result of an IRS approval of an accounting method change related to the timing of deductions for Chargebacks and rebates.
This approval allowed for the reversal of this previously uncertain tax liability position.
It's important to note that this is a book tax benefit and does not impact cash taxes.
GAAP net income for the third quarter, 2019 was $48 million or 38 cents per diluted share compared to a GAAP net loss of $70 million or 56 cents per diluted share for the same quarter of 2018.
Including a net negative adjustment of 45 million to net income for non-GAAP items adjusted diluted earnings per share for the third quarter of 2019 were two cents compared to a 6% loss in the same quarter of 2018. After net adjustment of 63 million to net income for non-GAAP items.
Included in the $45 million net adjustment for the third quarter of 2019 is the $66 million income tax benefit previously discussed.
Our adjusted EBITDA for the third quarter of 2019 was 29 million compared to 10 million in the prior year quarter.
The increase in adjusted EBITDA from the prior year quarter is primarily the result of higher revenues and product margins and lower FDA compliance related costs.
Sequentially adjusted EBITDA improved to 29 million from 22 million for the second quarter.
From the second quarter, primarily as a result, and product mix and lower FDA compliance related costs.
Please refer to the reconciliations to the reconciliation tables in the press release for non-GAAP measures.
Turning to the balance sheet, our cash balance at September Thirtyth 2019 was 206 million up approximately 27 million from June thirtyth, driven by $34 million and positive cash flow from operations, partially offset by 7 million in capital expenditures.
The $34 million and operating cash flow generated during the quarter reflects our operating results as well as positive working capital performance driven somewhat by timing.
Year to date, we have generated $5 million of cash from operations. Despite 38, approximately $38 million expended on FDA compliance and data integrity related matters and $12 million on refinancing activities.
With a debt balance of 845 million.
On a trailing 12 month basis, our net debt to adjusted EBITDA ratio was approximately 16 times at September Thirtyth 2019.
Turning to our outlook for the full year, we're pleased with our progress and remain confident in the fundamentals of the business. At this time, we expected our net revenues will be biased towards the lower end of the $690 million to $710 million guidance range.
And our adjusted EBITDA will be biased toward the higher end of the 71 to 86 million dollar guidance range.
We continue to expect spending on FDA compliance and data integrity efforts to total approximately $50 million for the full year.
There are couple of moving parts on the other lines net loss is now expected in the range of 193 to 178 million.
Improvement from prior guidance is primarily driven by the third quarter income tax benefit I described earlier.
And capital expenditures are now expected to be approximately $35 million for the year.
Please refer to the reconciliation tables in the press release for non-GAAP measures.
Finally, turning to our effort to refinance our existing term loan and address our capital structure with our lenders as required by the standstill agreement.
The last few months have been very active and I'm pleased to report that theres been strong interest from prospective investors. In fact, we've received several indicative proposals that are moving forward in the diligence construction process.
With several options being considered we're working hard to identify and implement the appropriate solution.
In addition, we're also in discussions with our current lenders to accommodate the timing of implementation of these proposals.
With that I'll turn the call back over to Doug.
Thanks Duane.
Acorn story this year has been one of execution.
I could not have been more pleased with the collective efforts of the entire Acorn team working hard to help realize the improvements we are seeking across the business.
I firmly believe that were in the right path and we will continue to see progress if we stay the course and maintain our focus on compliance transparency and accountability.
Our there's still much work to be done I'm extremely optimistic about the future of Acorn and confident that the company, we will return to long term growth and sustained profitability.
And with that we'll open the Florida questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone.
And if your question has been answer to you wish to move yourself from the Q. Please press the pound Keith.
Once again to ask a question. Please press Star then one.
Okay.
And our first question comes from the line of David Amsellem with Piper Jaffray.
Thanks, So just a couple so.
The first news you mentioned in the release.
Price increases on specific product. So I just wanted to get specifics on that and maybe talk.
Can you talk about the extension, which you can take price.
Have you can be opportunistic there.
So that's number one will then number two maybe I missed full side just wanted to clarify you'd said previously that you you're looking at EBITDA adjusted EBITDA proportionately more than doubling last year wanted to get your latest thoughts.
On the EBITDA outlook.
For next year, and if you're still thinking about that target.
As credible thanks.
Thanks for your questions from a from a price increase perspective.
I think as we are going to be noted our was positive price variance to the result of price increases that we took on.
On selected products that are.
Hello Hello.
Good dynamics, if you will.
Don't want to get into the specifics, but I think one of the one of the publicly available items would be.
Okay Angelic, we took price increases on that at the end of the first quarter and overseeing the impact of of that as we go through the year.
As it relates to.
As it relates to 2020 of we still do see a path towards doubling EBITDA EBITDA from 2019 levels to 2020.
As we as we look to significantly decrease.
The.
The spend that we have on our FDA compliance efforts as well as other kind of cost containment efforts and so on so that that outlook still remains the same it Dave assets could add on the pricing discussion I mean, certainly it's our responsibility looked at our portfolio in light of both the competition and the available.
Alternatives for the certainly with the.
The company experienced late last year, and many products not being available are unable to supply to to fully meet the market demand. We went back and looked at the portfolio as we are coming back with items and took several actions in the early or late part of the first quarter, one of which was a lighter Kane again these pricing actions were.
Joining us significant increases in terms of absolute dollar amount I know, obviously is less sensitivity and awareness of that and all these actions were actually all reported consistent with the legal requirements by state as we went along with the activities.
That's helpful. If I may ask a follow up.
In terms of the.
Discontinuation decided are are there more of those.
Product Discontinuations in the works and I know that.
Managing the commercial portfolios is fluid, but then when you can you talk about are you thinking about.
Portfolio optimization and specifically Discontinuations.
I'd say less than the discontinuation front certainly some of the work that's been done with the cgmp enhancement activities was to go back and look at methods on many of the older products in the portfolio. So some of those products have not come back end market. We're still completing that work at for example, our Somerset facility. So.
Part of the growth trajectory to next year as a full year impact of products that have come back to market. This year as well as we look at managing our mix both of existing products, where there are opportunities or volumes that we are trying to recover from as well as potential opportunity to bring back select limited items.
But certainly the base business is quite strong.
The major discontinued item was misleading blue, which was an unapproved products that we had been selling we're no longer on the market with that for a variety of reasons.
But so no discussion discontinuing products is not going to be part of the strategy. As we go forward. This is a fairly unique circumstance.
This pending litigation on that okay.
Yes.
Alright. Thanks.
Thank you.
Our next question comes from the line of Randall Stanicky with RBC capital markets.
Great. Thanks, guys, Doug Duane maybe help us out with the guidance for this year on the one hand, you're pointing to EBITDA guidance at the upper another range.
Which is pointing to around $25 million on on the other hand in positive step down from three Q, which I suspect is a timing issue given the last couple of quarters of beat but as we think about run rating for Q.
Obviously run rating a number that's around 25 million versus one the tires.
Getting us to a lower overall numbers, so help us understand the moving parts some of the perhaps cost issues and what ramps specifically the business up to that doubling of EBITDA in 2020, and then I've got a follow up.
Well I guess, if if you just to kind of the squeeze math, if you will for the for the year to date and then the guidance that we're talking about now for.
2019 first of all we do expect.
In that in that EBITDA performance, there will be there will be significantly larger ft, a remediation costs in the fourth quarter relative to the third quarter, we were and that's a timing issue just as we get to Somerset activity kind of ramped up as needed.
Going on the warning letter items.
The other is as Doug mentioned failure to supply was significantly improved in in Q3 actually a slight positive for us.
Some of that was what I'll call kind of one time benefits from being able to adjudicate. Some some claims favourably.
In our favor so I don't I don't expect a credit there and in Q4 I do expect on overall improvement relative to what we've been seeing over the last number of quarters before Q3.
The other thing is we've we've.
We continue to quite frankly, we were we were quicker to get back orders down.
That happened in Q2 really didnt help to assist Q3 that much but that's as we look to.
The year at the beginning in Q1.
The the velocity, which we were able to kind of ramp that back down and give that down to more reasonable levels was was quicker than we had.
Anticipated so all those kind of add up to a Q4 that's.
Where we're where we are guiding to.
And I think if you if you take into account the.
The failure to I'm sorry the.
FDA costs.
If you again, if you just do the math, you're looking at 11 $12 million for the for the fourth quarter, which then puts us at.
30.
30, 537 somewhere in the mid to possibly high Thirtys on on a run rate basis.
If thats the true if adjusted the it's just that as the true run rate than were.
35 times four for for 2020, which is a 140 million.
We're we're working hard on on cost initiatives, either through procurement or at the facilities and a little bit at headquarters.
Which then can provide more juice beyond that.
Yes, good at rental that again, I mean, it's really not providing 2020 guidance here, but certainly talked about third of supplying last year. The company had over $22 million in Florida supply penalties.
We are kind of running of the same run rate the first half of the year with about four or five ish and then again, we had a quarter here, where it was essentially flat there were some 30 supply, but certainly at a much lower run rate.
Thats the number that it would look in 2020 every maintain that rate. That's a that's of net contributor at least 10 or so on EBITDA. We also had several operational costs in the core it was from Onetimers as we are continuing to complete the remediation activities in some investigation. So we still more work to do to improve our operational performance at the sites, which again will contribute to our overall EBITDA.
Improvement by cost reductions and elastic from a commercial standpoint.
With better supply performance better cycle times at our facilities higher rates of completion and compliance theres more business out there for us to get so so thats, partly driving the topline which will contribute margin.
To the bottom line as well.
No that helps I'm just trying to understand the.
The the support mechanisms to next year and then the two follow ups on that topic I'd have number one Duane does.
Does the gross margin continued to improve from the 40 plus percent level right now that's a little bit quicker capture than we expected and then Doug.
When can we see jurors off do we have line of sight into some more specific timing on that thanks.
Yes on the.
Certainly absent the FDA remediation costs that are reported as part of.
Cogs I do expect continued improvement kind of the underlying.
The underlying operations of the facilities and whatnot, where where we've come a long we had a long way to go we've come a long way, but a little bit more work to do or so working indicator and I'm sure that.
There's a little bit of a distraction, but we'll get that done this quarter.
And then get good Somerset done sometime in early 2020, and then then we're kind of cooking with gas if you will and so yes, I do I do expect continued margin improvement again absent the dynamics of the kind of unusual FDA compliance costs.
And right now the on the result, we argue as we mentioned last call. We did receive a complete response letter the team is working on.
The required responses to that the goal is to have that out before the end of the year hopefully even before the end of released early December and with that given the fact that we've yet to see an approval.
We believe were first in line CGT designation that cycle time, reviewing that potentially could be faster than six month, but it's certainly tonight and we anticipate are we believe will be at 2020 item for us.
That's great. Thanks, guys.
Thank you.
Our next question comes from the line of Elliot Wilbur with Raymond James.
Thanks, Good morning.
Just want to follow up in your last commentary around the there is all competitive environment.
Oh, it's difficult to know who's doing what in this space I guess, but.
Are you.
How are you thinking about your position in terms of first to market versus other players I mean, I know that.
I think you guys are the only ones, where there is actually what's a good people are filed in an action, but I think we're coming dinners could be on the market next couple of weeks. So just kind of wondering what you may be hearing in terms of competitive activity.
In that in that product.
Well I think we're not hearing anything so I think thats indicative of where we believe we are in line related to.
Market entry and again this is not an easy formulation, it's one that again subject to the guidance and and focus. It's one that we spent a lot of time with the agency on we as I mentioned Weve received to see ourselves and we're working on the response to it and it's very.
Very important very complicated very challenging formulation as well as to produce in the sterile facility. So we havent heard anything, but you're right I mean since there as the last of the pediatric IP will expire later this month.
There could be out there, but again I'm pretty confident our our years from the customers, who always like to talk about new products have not indicated that someone is waiting in the wings, but that's the generic drug business.
Yes, no got it thank thats very helpful.
Well go back to some of the commentary around continued improvement in failure to supply activities and just basic sort of overall.
Positive trends in terms of operational execution trying to think a little bit more other than just short of a reduction in span tied to some of these items how that could translate into.
Better overall revenue performance for the existing base business. That's a tough question answered a lot to moving parts, but maybe the the question is better framed as you could just kind of give us a sense of where Somerset indicator or are in terms of either.
Capacity utilization or throughput relative to historic levels, just trying to get a sense of kind of where we are in terms of operational performance versus historical levels.
Yes, again, I would say that I mean, a lot of that you just.
You talked about performance momentum, which I mentioned, the beginning of my remarks.
Good cycle time improved cycle time of the facilities batches produced right. The first time more more swiftly and complete completion of investigations and Kappa implementation. Those are all sorts of things that accelerate up product availability or our planned product of Lv metric, which of course results in the ability for our commercial.
And John and the team out there to go out and not just maintain the business. We have to go out and seek additional opportunities. We said no to a lot of business last year plus in light of the compliance challenges the slowdown facilities, the taking things on and off line is doing remediation implementation. So now there's a lot of work out there, but certainly we are looking at opportunities on our.
On our again, our unique and I think very very strong portfolio valued portfolio from our customers. So.
We are clearly looking at capacity utilization across our lines some areas, where there is significant utilization we've actually got.
The alternative production being qualified both within our facilities that potentially third parties. So that's an ability for us to go out and take more opportunities in the market space and allows and certainly as we.
Make things right. The first time and eliminates the need to do the second time, which again effectively.
We won't necessarily increase the quote utilization facility, but it will increase the output.
So those are some of the basics and with the leadership, we have as I mentioned last call. We've got new site leadership at to cater new quality leadership at all the facilities insight leadership in our facility in in Switzerland has now been onboard for several months and we're definitely seeing the momentum that Dwayne mentioned service levels came or sorry backwards came down significantly second quarter, we maintain and actually slightly.
Improved upon that and the third quarter. So we're trying to get away from allocating products to actually having products available and go out and Opportunistically take opportunities because they are they're offered to us and weve been unable to.
To to pounce on them in the past those are currently areas that we look forward to as part of the revenue growth activities in 2020.
Okay last question financial question for Duane Brain, you talked about the better operating cash flow performance in the quarter or certainly stands out I guess recent relative trends over the last couple of years.
I mean, it does look like decline receivables was a fairly significant driver of that and receivable levels seem to be well towards the low end of the historical range at least on an absolute basis seems like something more than just simple timing and I'm wondering if you could just addressed that particular aspect of.
Cash flow dynamics in the quarter and then just a follow up on the price increase question much bigger contribution. This quarter. Obviously is it basically the same products that contributed to positive benefit from price increase Q1 into Q and you're just seeing fold applicability of increases across to all volume or maybe have there been some additional prada.
Where price.
It has been taken and just we haven't seen those necessarily yet in some of the third party sources. Thanks.
On the pricing first the it's not it's not a function of new price increases or additional price increases its a function of the ones. We took and then getting sometimes it takes a little while for the for the effect of those two to punch and if you will in Q3 was kind of the first quarter, where everything is in full effect if you will.
As it as it relates to working capital, Yes couple a couple of things on on working capital first of all.
Steve production and receivables that is less about timing that's that's more.
That's more about product mix.
Than it is than it is timing I don't expect.
Absent apps and big changes in sales performance I don't expect big changes and in a are going forward. So I don't I don't think that timing will reverse or reverse significantly anyway.
The timing that I'm alluding to is.
If you take a look at the balance sheet.
Based on the timing of payments, our payables and and whatnot. We're also help during the.
During the quarter.
And that's really a function of timing nothing nothing more than that.
So I guess, that's the that's I would approach looking at what what could reverse going forward.
Thank you.
Our next question comes from the line of Matt Hewitt with Craig Hallum.
Good morning, congratulations on the return to growth on the topline.
First question regarding the pipeline.
Obviously, you've got a lot of moving parts with the FDA remediations and the debt refinance all these other things that you're going that you have going on but as you look at the pipeline. How are you allocating resources and what are your where do you see some opportunities to kind of bolster that pipeline as we kind of move into 2020.
Yes, great question.
Matt I think certainly as we mentioned emission several calls we've shifted our internal portfolio focus onto more complicated more complex ophthalmic suspensions and specialty injectables. So I think overall going to see less quote filings. If you will but certainly the ones that we do intend to file more value. We certainly have got resources back and working on development price.
Next we did pull some have waited to support the remediation activities and they're still working that in some of the last efforts in in 2019 in early 2020 with the remediation of methods.
With some of R&D resources, but overall, we continue to look at I'd say less filings a ones, which we believe will be more impactful over the longer term.
Great and then one more question I guess is regarding the gross margin the 40.5% in Q3 was strong.
In light of the fact that that's normal year quarter of seasonal shutdown for the facilities.
When you went through that shutdown. This year were you able to get the work done that you needed to do anything new pop up or did you get in and realize okay things are maybe that we've we've done more than we anticipated maybe just some color regarding that that normal shutdown process and what you're able to learn during that.
Well again, I think the teams executed extremely well during the during the scheduled shutdowns, we had across all of our facilities.
And yes, certainly as we continue to look at.
The work we're doing from remediation ongoing investigations, we did have some additional product write downs in the quarter, which is coming in from the earlier questions about operational metrics and performance. That's a number that would definitely needs to come down in Q4 into 2020 to support a maintain maintaining and sustaining improved operating margins. So but again, we got a lot of comps.
As I mentioned, the rabbits implementations, we've done wraps previously the last scheduled shutdown to cater.
Those have been submitted to the agency. So again those if that was the last significant commitment from a from a manufacturing.
Capabilities, certainly the the training and ongoing activities to complete the warning letter and 43 commitments are also well underway.
Part of the reason why this step up in the spend in Q4 on the remediation is the warning letter for Somerset required third party retrospective evaluations and Thats getting the team on board, which is quantico, and getting them up to speed. That's why there's a little bit of us timing change on the on that work, but thats certainly an active it's not affecting the daily production activities, but certainly as a means to address.
Yes, the questions and items identified from the agency in the warning letter.
Got it alright, thank you very much yep.
Thank you. Our next question comes from the line of Gregg Gilbert with Suntrust.
Thank you guys and then Genfare I've a couple first.
On presenting US litigation can you offer any update there and in fill us in on to what degree that plays into either the cost to the timing of the refinancing options that you have.
Well I get in the Fresenius thing.
We submitted our response at the end of September .
So again, it's in the.
It's going to the process and we still ongoing discovery, we're not expecting any sort of decision before the end of the year end potentially kind of running the early 2020.
Yes disclose it's available it's been part of our discussions of course with both our existing lenders as well as the the multiple companies were firms were speaking with about a refinancing and capital structure.
Initiatives as well as the class action lawsuit.
The the proposed settlement there so.
People are aware, there's no new news. Other then again I think we submitted a very very strong response.
So no no expectations on timing other than just not by year end.
Yes, we don't we don't expect to a decision from a from from a core perspective during 2019.
Okay, Great and then back to that pricing question, you talked about that 37 million in growth tied to that price increases on the certain exclusive products you named one of them.
I assume you're not going to name the others, but can you give us a sense for how sticky do you think that will be when I consider what you said about 2020 EBITDA. It's sort of implies that you don't expect a lot of revenue to go away and correct me, if I'm wrong on that but.
Do you expect the exclusivity or relative exclusivity period on these products.
To continue for several quarters I guess is the question.
So I would say operationally again sticky is right I mean, the first of all the actions. We took were after significant review of looking at the market dynamics and while the way some of them were to to catch up with others, who have taken action when we were off the market. So.
We're not you talk about exclusive a relatively exclusive most these products are not exclusive items.
So we are seeing.
Dynamics in the marketplace and those are those are maintaining.
Appropriately as well as again, we've got volume.
Increase as we've gone after the market space so.
We are seeing or maintaining our role and our and our share in our position on those items so far.
I guess.
Sometimes.
But with light became generally.
We call that went out because its is the biggest one of the bunch, we won't call. The others out some of them you may be able to see if.
The pricing is public but.
Our our feel is that.
For most of these products is there is there is some stickiness none of these markets are massive.
And none of the price increases were.
Hello.
Hugely massive and and our where where applicable are priced at parity with kind of alternative.
Forms that might be that may be out there, even though that molecule might be might be exclusive. So none of them. We're we're out of out of whack. If you will.
And for 2020 anyway, we do we do anticipate some stickiness.
Great.
My final one I promised us not us make you had asked about long term guidance, because I know you're not thanks, Doug but.
Curious if you think the assets and the capabilities that you have in house today are sufficient to provide you with with growth after sort of the turnaround phase and getting back to a more normalized level EBITDA, which we could call that 2020, you think you have the capabilities in assets in house.
To grow the company.
And sort of overwhelm that leaky bucket, that's inherent in the industry or do you think they'll have to be so some external growth drivers.
Inevitably fit to make growth half and half off a more normalized basis.
Great question I think it's it's both but certainly on the on the internal capabilities and again, we haven't talked about our brand franchise, we haven't talked about their antares and certainly those are products that are growing and categories are growing as well as getting our R&D group back into delivering and executing on the portfolio items.
We think are difficult sustainable and valuable and that's really an area that as we certainly lot of the near term focus when I started in January the first half of the year was around the the operations.
And our compliance in our Q Scaff program, which is now deeply ceded within the company.
Certainly expect and appropriately look at what are the growth prospects. So I think our internal development portfolio focused on specialty ophthalmics and injectable products.
Push into our branded assets as well as our over the counter franchise, and Theratears and well I'll say opportunistic either in licensing or asset purchase when our capital structure has improved our cash balances in our we have some dry powder back which is certainly one of the outcomes of our renewed run rate on EBITDA as well as our refinancing activity is complete.
Good.
Thanks, a lot.
Thank you and Im showing no further questions at this time I will now turn the call back over to Jennifer bowls for closing remarks.
Thank you all for joining our call today, and we look forward to speaking with you again next time.
Sure.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.