Q1 2020 Earnings Call
Thank you for how do your conference call will be approximately two minutes again. Thank you for holding your conference calls <unk> and approximately two minutes. Thanks for your patience.
And walk up to this afternoon <unk> Conference call. My name is your own I will be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question and answer session at the ever question. Please press Star then number one under Touchtone phone. Please.
I was just this conference call is being recorded.
I'll turn the call over to Robert Jaffe Investor Relations for letting that company, Sir you may begin.
Thanks, Good afternoon, everyone and thank you for joining us today to discuss blend that company its fiscal 2021st quarter financial results.
On the call today, or Tim crew, Chief Executive Officer, and John Kozloski, The company's Chief Financial Officer.
This call is being broadcast live at Www Dot net dot com.
And playback will be available for at least three months, sometimes on its website.
I'd like to make the cautionary statement and remind everyone that all of the information discussed on todays call is covered under the safe Harbor provisions of the litigation Reform Act.
The company's discussion will include forward looking information, reflecting management's current forecast of certain aspects of the company's future and actual results could differ materially from those stated or implied.
In addition, during the course of this call we refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles.
And maybe different from non-GAAP financial measures used by other companies.
Investors are encouraged to review and that's press release announcing its fiscal 2021st quarter financial results for the company's reasons for including non-GAAP financial measures and its earnings announcement [noise].
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today.
Please note that additional information regarding the company's historical debt repayments can be found on the company's website in the Investor Relations section as part of todays press release.
This afternoon, Tim will provide brief remarks on the Companys financial results as well as comments on recent developments and associated initiative.
And John will discuss the financial results in more detail, including the Companys.
Fiscal 2020 guidance, we we'll then open the call for questions.
With that said I will now turn the call over to Tim crew them.
Thanks, Robert and good afternoon, everyone.
This first quarter of our fiscal year wasn't important one on many fronts.
Beyond achieving our near term financial objectives, and demonstrating year over year growth on an ex vivo basis. We also significantly improved our capital structure and added new products to both our inline and future pipeline that could drive significant future growth.
So let's review those accomplishments.
On the financial front, we're pleased to report a solid performance for the first quarter.
Our topline and profitability was a bit better than expected largely due to strong sales a few key products, including benzene and public comments all.
As a reminder, we signed an agreement to be the exclusive U.S. commercialization partner for public handled the labor lease tablets.
Which is the generic version of Dr. Phil.
The public comments on market had IMS sales of about $330 million for the 12 months ended September 2019.
This first to Mark Marcon generic is currently the only approved a and B a available.
Total net sales for the quarter were approximately $127 million, an adjusted net income was approximately $9 million.
Or 22 cents per diluted share.
Adjusted EBITDA was approximately.
$35 million.
Turning to the balance sheet.
Most of you are aware, we had been disciplined and proactive and paying down or debt.
As of September 32019, our combined termite and term b loan balance was about $670 million.
Down from about $900 million at the beginning in fiscal 2019.
Importantly at the end of the first quarter, we successfully completed an 86 million dollar offering of convertible notes.
We believe this latest transaction is an inflection point, that's significantly improved our capital structure.
John will provide some additional comments on this transaction later in the call.
Now turning to our currently marketed products and related market dynamics.
As we have said, we'd look to improve the returns from our inland portfolio through enhanced supply readiness and portfolio optimization.
While also adding numerous near and mid term new opportunities.
When we build our forecasts, we anticipate that certain products will perform better than expected.
And that was will contribute less than expected.
With that in mind, a basket of are currently marketed products did experience slightly higher than anticipated competitive pressure or quota constraints.
Fortunately however.
Other products, such as with benzene and part of the Con is all did better than expected.
Also along with many other suppliers, both branded and generic.
He recalled our remitting liquid product.
The recall is based on higher than acceptable levels that the F.D. has recently established established for so called end DNA.
Which was found in the <unk> and then the finished dose.
Based in part on the continued strength as we spend has been in Paas economies all.
And the plan new launches.
Offset by the current competitive environment on some of our products and the voluntary recall a burn entity, we are reiterating our adjusted guidance for fiscal 2020.
Achieving our reiterated guidance is of course dependent on our successful ongoing lunch parade.
The balance of upsides and downsides across our portfolio.
Regarding the launch of rate.
As we have earlier noted our launch calendar. This year is backend loaded.
We have launched three products, so far, namely pods economies all prednisone in separate editing.
And we're currently looking forward to launch at least another dozen or so products by the end of the fiscal year.
Including Benlysta vaccine Youre tablets, SMC Tempe suspension, azithromycin tablets, and our debris know India.
Now for an update on some of the key generic products and our pipeline, which we expanded in the first quarter with the addition of two major products.
Namely generic adverse in yield legal for oxy.
These two opportunities reflected in our earlier stated reflect our earlier stated intention to layer in products that have the potential to drive significant growth to our business in the medium term and beyond.
We earlier announced that we formed a strategic alliance with rest Brent pharmaceuticals to be the exclusive U.S. distributor other generic at very discuss product.
So we will take some time here to articulate why we think the opportunity is so important.
Advert discuss is a combination of what took a zone and some of these are all in a dry powder inhaler.
Currently annual U.S. sales of this product or about $3.4 billion.
So this is one of the largest addressable markets in which when that has ever potentially participated.
Moreover, a generic Advair Diskus development program has several aspects that lead us to expect some persistency of value for approved generics on the market.
First it requires a substantial initial investment in a specialized plant and related equipment.
Second it is quite technically challenging to manufacture given it is a drug device combination delivery micrograms of medicines.
And third it requires a substantial clinical investment.
To put this in context.
Hi, Alan which has the only approved a India in this space.
As referenced a several hundred million dollar investment in their add very generic program.
Well I'm not suggesting that under current FDA guidance anywhere near that level investment will be needed by our partner rest Brent.
They are nevertheless, investing quite heavily.
We believe the company has the expertise to bring the generic equivalent to approval and ready for commercialization.
Notably respite has already made the investment needed for the specialize plant and equipment required and David developed the requisite device.
As part of our development program, we have submitted control correspondence to the FDA addressing the respite device and the proposed products qualitative and quantitative saying to the reference brand.
The FDA feedback was encouraging which when combined with the successful clinical endpoint trial rest Brent conducted for its pending USA filing.
And ongoing PK be studies.
Means we believe we continue to March toward an anda filing around summer of next year.
Generic Advair Diskus is an addition to a number of other products in our pipeline with significant potential in the near to medium term.
Our insulin Glargine Biosimilar project from HSBC is also progressing.
Similar to generic adverse discuss.
Insulin glargine will be one of the largest U.S. addressable markets in which Illinois has ever potentially participated.
I am as reported sales are greater than $6 billion.
Like add there, it's technically challenging to develop and manufacture insulin glargine to meet U.S. FDA requirements.
It requires significant investment manufacturing capacity.
And development and ended the drug device combination.
When it is completing the analysis of the human PK PD study, comparing hccs insulin glargine to U.S. lantus.
And expects to report the study results soon.
Well that together with HSBC well request, the so called bio similar biological product development type three meeting.
To review the development plan.
And plan to additional studies based on an in depth data review of the Biosimilarity data.
The review will include extensive analytical analysis animal studies and now human PK PD results persons U.S. Lantus.
We expect to meet with the FDA in early 2020.
Like rest Brent our partner HCC is investing heavily in their global insulin program.
And as a building a comprehensive manufacturing infrastructure to allow HCC to supply significant share.
Of an affordable alternative to the current insulin markets in the U.S., China and elsewhere.
Now turning to the Breanna.
We believe our NDA filing continues to progress at the FDA and remains on track for an approval in the December January timeframe.
And we expect to launch shortly thereafter.
Well, we have ceased operations at the Coty plant, we have already produced the product at our Carmel facility.
We will complete the technical transfer at the New York site once the India is approved.
Now regarding for the might.
We believe our internally developed for the might product could launch in fiscal 2021.
There are no currently approved generic equivalent available in the U.S. fourth worldwide.
And last but not least we expect to begin marketing our previously announced partnered LIBOR for boxing product no later than August 1st 2022.
To sum up.
We have again achieved our near term financial goals reaffirmed adjusted guidance and completed the significant transaction to improve our capital structure enhance our financial flexibility.
We continue to work to strengthen diversify and expand the revenue base with numerous new product launches over the balance of the current fiscal year and beyond.
And we're excited about are expanding pipeline of large market opportunity products.
And we'll continue to look for additional opportunities to build strategic alliances with partners.
The products and capabilities beyond our immediate scope.
Our goal remains to achieve topline compound annual growth rates well in excess of the industry through disciplined execution.
The U.S. generic industry represents a large opportunity for mid scale compute competitor like on that.
Given our focus on the U.S. market, our commitment to reliable supply chain and the strengthening of our generic pipeline. We believe we are well underway to achieving our goals.
With all of that I turn the call over to John .
John .
Thanks, Tim and good afternoon, everyone. As was mentioned earlier I will be referring to non-GAAP financial measures. The reconciliation of GAAP to non-GAAP numbers can be found in today's press release.
Now for the financial results on a non-GAAP adjusted basis.
For the 2021st quarter net sales were 127.3 million, which were higher than expected largely due to strong sales of certain key products, including two fencing and public comments. All this compares with net sales excluding the bofa roxon of 101.2 million for the firm.
First quarter fiscal 2019.
Gross profit was 52.6 million or 41% of net sales compared with 668.7 million or 44% of net sales for the prior year first quarter.
Our adjusted gross margin of 41% was slightly lower than anticipated, mainly due to inventory write downs and adjustments related to obsolescence.
Interest expense <unk> expense decreased to 15.3 million from 16.9 million due to pay downs of term a and term b loans during the previous fiscal year.
Net income was 8.8 million or 22 cents per diluted share, which was slightly higher than our expectations. This compares with net income of 16.9 million or 44 cents per diluted share for the fiscal 2019 first quarter.
And adjusted EBITDA was 35.1 million in Q1.
Turning to our balance sheet as Tim mentioned in late September we completed an $86.3 million offering of convertible notes. The net proceeds of which we used to pay down half of the outstanding balance of our term may loans.
After the pay down the remaining balance of the term a loans was approximately 69.5 million an amount that is lower than our cash position of $101 million.
This transaction as several benefits.
First the convertible notes mature in seven years or 2026 versus the term may loans, which mature and about one year.
Second the convertible notes have a lower interest rate than the term a loans.
Third the convertible notes, our unsecured debt and do not count towards the covenant calculations.
All of which have significantly improved our financial flexibility.
As we have previously said, we will continue to be proactive and disciplined on extending the maturity profile of our existing debt and we will continue to look for opportunities to further improve our capital structure.
At September Thirtyth, 2019, cash and cash equivalents totaled approximately $101 million.
During the quarter, we paid approximately 20 million for the future marketing rights to leave if I Roxanne.
It was one of two separate transactions that we completed last quarter with new a former.
Our outstanding debt at the ended the quarter was as follows.
Convertible notes $86.3 million due October 2026.
As I mentioned, a moment ago Turmail owns 69.5 million due November 2020.
And term b loans $602.4 million due November 2022.
Total debt was approximately $758 million and debt net of cash was $657 million and net secured debt was $571 million.
We continue to expect to be within our financial covenants up to the maturity date of our term late term may loans.
Turning to our guidance.
As a result of the convertible notes offering we have lowered interest expense for the full fiscal year to the range of 54 million to 56 million from 56 million to $58 million.
Other than the change to interest expense, we are reiterating our fiscal 2020 adjusted guidance.
We continue to expect net sales in the range of 525 million to 545 million.
Adjusted gross margin as a percentage of net sales of approximately 40% to 42%.
Adjusted R&D expense in the range of 34 million to 36 million.
Adjusted SGN, a expense ranging from 63 million to 66 million.
Adjusted interest expense in the range of 54 million to 56 million down from 56 million to 58 million.
The full year adjusted effective tax rate and the range of 22% to 23%.
Adjusted EBITDA in the range of 145 million to 160 million.
And lastly capital expenditures to be approximately 20 million to $25 million.
Regarding the phasing of the quarters, we expect net sales in Q2 to be comparable to Q1, an increase in the second half of the year as a higher number of product launches are expected in Q3 and Q4.
With regard to gross margin, we expect Q2 to be slightly higher than Q1 and decreased modestly over the balance of the year.
We expect EPS and adjusted EBITDA to increase sequentially quarter over quarter for the remainder of the year.
With that overview, we would now like to address any questions you may have operator.
Thank you we will now begin the question and answer session.
Your next question. Please press Star then the number one and there today.
If you are using it.
Please pick up or has that.
Right.
The other question. Please press Star then one on your touched on.
Our first question comes from Elliot Wilbur from Raymond James Your line is now open.
Thanks, and good afternoon first question.
Tim.
Just with respect to base.
Folio trends I guess the theres been.
A lot of mixed messages coming out of the industry over the course of the last couple of weeks with respect to the extent of competition.
On.
Older based products and hearing from some companies that you're seeing.
Competitors sort of double down and try and re optimize their portfolios or even a company today talked about.
The closet point out a bunch of show.
Days to try and pick up revenue.
Wondering if you're starting to see.
Signs of that impacting your business and just how you're kind of thinking about that particular dynamic over the next 12 months or so.
Good evening Elliot Thanks for the question.
As we indicated previously we've always felt that.
Industry trends are not necessarily reflective of your particular portfolio.
Last year, we felt that we were doing a bit better than the industry trends. This year, perhaps more aligned with some of those industry trends at the end of the day. We believe are slightly more mature portfolio will be relatively more stable than new products coming to market.
We also believe that maintaining the pace of new product launches against the basket of products that we have coming as well as in market give some balance and as noted in today's call. We had upsides and downsides and remain on track for guidance and we're pretty pleased with that result in context everything else that we've been hearing.
Okay. Thanks, just wonderful ask a follow up question regarding the recent deal for.
In terms of the company's cumin if investment obviously, we don't expect it being were close to my one but as you alluded to those are fairly.
Program.
Well certainly can be and then just wonder if we get maybe a little bit more clarity on the timeline there.
It looks like breast brands completed.
But then they had a comparative trial thing.
Scheduled to begin in late 18, and looks like any way that it's been close so I'm not sure if that's complete or not but.
There in terms of timeline with respect to filing.
Sure.
As it relates to the investments that have been made by rest Brent we're not going to be comfortable disclosing what.
They have invested although it is substantive I do believe with current Sta guidance and developing a program post the expiration of the earlier device patents under add their discuss we'll certainly streamline and reduce those costs, but you are certainly talking.
Three digit millions before you can bring a product I would believe to market.
Relating to the timelines.
Their original.
Clinical trial that was used to support their you filing and as well as the U.S. filing was completed.
They have conducted some PK PD trials. They are starting another confirmatory hopefully final PK PD. This January .
Subsequent to the results of that PK PD, if all goes well they should be able to file in the summer of this year.
Okay. Thanks, just last question.
One last question any update you can provide with respect to a number.
Well as we indicated on the Brean now we are basically awaiting approval from the FDA. They have all the documentation that they've requested from us on our.
On our product as we noted in the call we have prepared manufacturing batches at our new site, we have plentiful plentiful supply has of apiay from the original site.
And once the India is approved hopefully in the next few months.
We will complete the tech transfer and lunch that product into the market with an approved label, which gives us some degrees of freedom to think about how best to promote it although our first goal will be simply to recapture as much as possible of the of the business. We had prior to our exit in July of this year I believe the current.
IMF.
Environment reflects as of September that we still hold about a 65% chair.
So many of our customers, we hope to be able to bridge to a new product that if it's approved in the January timeframe.
Our December .
Alright, thank you.
Thank you.
Our next question comes from Gary Nachman from.
Capital markets. Your line is now open.
Hi, good afternoon.
Jim described the basket, that's experiencing competitive pressures, how many products were affected and the magnitude of the impact and then how much did cause the kind as all contribute in the quarter.
What of what are the competitive dynamics here going forward. So durability of that product then I have a follow up.
Thanks, Gary as it relates to some of the products that have had some pressure we have earlier noted.
The methylphenidate ER had some approvals that created additional intensity in that space.
Similarly, our earlier launched aspirin to put them all had some additional competitive pressure.
And then of course.
The withdrawal from the market of renewing those where some of the bigger movers, there's always puts and takes on the other side in the portfolio, but those were the blocks.
That we noticed as much as anything else for the quarter.
The question as it relates to.
POSITANO dissolve.
Is.
Pretty encouraging we were approaching double digit millions for that month some of that was a.
Bridging or stocking of of the market given there is just ourselves in the AG in the market.
We will expect some persistency to those sales at least perhaps for a quarter or to recall. This is a extruded products. So the technology is a little more.
Complicated than your average old product.
But we would certainly expect competitor to be showing up sometime next calendar year.
Okay.
And then the flu fencing with that price or volume or both you called that out as well moving and the positive direction.
Yes. This offended theme sales this quarter were aligned with the last quarter, we again have persistently.
Benefited from fewer competitors the market Mylan has not yet return and another competitor has not yet showed up so the trend has been consistent.
The expectation there will be pressure on that project over the coming quarters, we don't know when.
But it was a bit better than we had otherwise forecast as we try to risk adjust our forecast across the.
Basket of our products. It wasnt so much a change in our market share or our yield on that market share, but rather the competitive environment remaining.
Limited to two to two our product.
Okay, and then are you still confident in the three year sales CAGR of greater than 15%.
Thank you said at the end of your comments growth rates greater than the industry, but you didn't specify that 15% and how much of that growth will need to come.
Inorganically from partnerships.
Thanks.
Thanks, Gary the the higher end of the CAGR is that we look for obviously require the successful falling and launch of products like were nicotine so to the extent those larger products and believe those and.
See topicals and the other pipeline products I alluded to.
The extent those products occur on the timelines, we believe the will occur we feel good about a CAGR in those sorts of ranges.
Okay all right. Thank you.
Our next question.
Matt Hewitt.
Craig Hallum Capital Your line is now.
Good afternoon, and thanks for taking the questions.
First one for me regarding adventure and and the insulin products given that these significant investment required by your partners.
How should we be thinking about what that will mean for you from a from a gross margin standpoint, once you're able to launch those products.
So both of those products, given the substantial infrastructure and investments required.
Would lead us to believe there will be a smaller number of folks that will be coming to the market and I think that competitive set is fairly well known given that.
Both of those products have three or four or five serious players that are committing this level of resource it'd be hard to envision not impossible, but hard to envision additional people putting up that level investment for for these sorts of products. So we think that competitive set is getting to be fairly well defined that's in the pen.
Ian.
And we're very comfortable with the investments our partners are making.
In that space I would would note on some of these more technologically challenging F.D.A. emerging a requirements there is it.
Real advantage to being a fast follow on.
Given that our development programs with our partners has started ones most of that path was more clear.
And there is still able to make the investments necessary because they're looking to obviously globalize their investments with the other markets that they expect to service.
Regarding our gross margins on those sorts of products.
We have.
Earlier stated that our partnerships tend to range between the sort of the thirtyish, 35% shares to the 50% shares of profits and I think these two partner shops or or a range arranged along those lines.
And it's a clear example, even for.
Those sorts of products. If we're on the lower end of that range as a percentage, we're talking very significant gross margin dollars.
Which of course is makes sense as a business.
Makes sense, Okay. Thank you and then regarding run into Dean.
How big of a contributor was that prior to the disruption or prior to pulling that for the market just trying to get a sense for what that headwind represents until you're able to bring that product back.
A four for us at least on the go forward basis, we are expecting.
Single digit millions mid single digit millions of revenue from from that product and it was fairly fairly high gross margin of course.
You know patient safety first and as the FDA guidance emerged that was it was clear that there were risk fear that they were trying to balance we've made that withdrawal I would also want to be clear that as I understand and I'm not a chemist, but some of the precursors to this H DNA excuse me in DNA.
Is somewhat resident in the moiety of of rent entity. So our expectation of this product coming back is limited, but thats something that we will follow the FDA guidance as a balance risks and opportunities over the medicines are on the market.
Okay and that kind of has answered the second part of that is what would it take to bring that.
Product back to market, but it sounds like that's kind of on hold.
The last one I guess for me.
You bring up front.
<unk>.
Teva has talked about part of their settlement agreement basically giving that product away.
What.
How does that how does that impact youre.
Your opportunity for that product or does it not I'd I'd, just trying to figure out how to I guess quantify that market opportunity for you.
So it was a novel and interesting proposal I I don't know the likelihood of it progressing there are lots of constituencies that had a lot of opinions about how that may or may not work.
As a practical matter all that I can say at this point from where we said it was.
Fairly modest a product in our portfolio I'm not thrilled to see.
Value we create.
Used for someone else and sort of situation or problem.
But it is not a significant or thought a significant component to our to our sales again I I.
I think that our current holding position is that's not happening soon.
But it should it occur transpire as settled and that sort of mechanism.
I would not have a huge impact on our expectations of our of our year in our forward.
Ford strategic plan.
That's really helpful. Alright, Thank you.
Our next question.
Greg Fraser from Suntrust. Your line is now open.
Thank you its frazer on for Gregg Gilbert.
Not sure if I missed that you can quantify the sales contribution from new launches in the quarter.
Not specifically, we had the one product.
The kind of we talked a little bit about its contribution being and being close to double digit millions.
That was the one launch for Q1.
Okay and.
On the Marino what are your latest thoughts side or the size of the market.
So on your product.
Obviously is an area where you have their premium.
The market.
Everything about potential size.
So thanks for question Frazier, It's a Tim recall, our sales of the Bruno are of the unapproved product excuse me before its withdrawal was around $3 million a quarter focus mainly on sort of trade engagement.
I think our first objective will be to regain as much of that value.
As we can through this sort of more trade based channels.
Based on the label that does.
Get approved we will certainly entertain looking at opportunities to expand market share recall from earlier conferences and calls the utilization of this product in the space is fairly low single digit percentages now.
The label is I don't think likely to support a significant market share in the space, but it certainly could support a larger market share in some of that of course being involved with how.
The product is handled by reinsurers and reimbursement Cascades, which is not something we obviously can pursue of an unapproved product that might have options on the approved side. So I think that's a little bit of stay tuned but near term our expectation is to get back.
As much we can have our former sales trends that we had historically on the unapproved product.
Got it. That's helpful. Then just last one is done on generic creation and the cases in which.
The state any movement in those cases in the near to medium term.
Yeah, we.
We on the litigation side don't make public commentary beyond saying, we cooperate and we believe we backed within the confines. The law. This process has been slow as it relates to things actually in the courts, a little bit more noise in the areas of public opinion. So.
So I defer to what you read and what you hear we remain focused on on doing the right thing working with the demands for information as they occur and continue to believe we've acted appropriately.
Okay. Thank you.
We have no further questions at this time.
I'd like to turn the call back to management for closing comments.
All right, it's a Tim again, I'll close out with our customary shout out to all our employees customers and partners. So important to the success. We have just described.
We look forward to sharing our progress with you on our next call good night.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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